Investors move court to stall Gujarat bond move

An investors' forum has filed a petition in the Delhi High Court to prevent prepayment of costly bonds by the Gujarat government-backed Sardar Sarovar Narmada Nigam Ltd (SSNNL).

The petition came up on Wednesday before Justice RC Chopra who set May 21 as the next date of hearing it, official sources said today.

Bondholders in Delhi and Mumbai have joined hands to prevent the corporation from redeeming the 17 per cent interest bearing bonds nine years before their maturity period in January 2005, a move that could create severe asset-liability mismatch in many provident funds and co-operative banks.

"We have filed a petition challenging the validity of such a move by the corporation and the trustee ICICI Bank," SSNNL Investor Forum's convener Manish Singhal said.

In its petition, the forum said, "the action of SSNNLcontemplated through individual notices and public notices is illegal, arbitrary, malafide, fraudulent and against the terms of the bond."

The forum also said the corporation did not have the power, competency and authority to prepay the bonds. A member of the forum said the prepayment of bonds would be against the provisions of the Indian Contracts Act, the Public Debts Act, and the Companies Act.

Singhal said the investors forum had hired AK Singla to take up their case in the high court. The corporation has engaged eminent legal firms, Amarchand Mangaldas and Singhvi & Company, to contest the forum's charges.

Some PFs, which have invested in SSNNL bonds at a price of Rs 40,000-43,000 a unit during April, had already witnessed severe capital loss as the bond price had come down to around Rs 26,000, Singhal said. The PFs and other investors would suffer a hefty loss if the bonds were redeemed prematured, he added.

There are more than 500,000 bondholders of SSNNL and it was not possible for all of them to be present in the meeting convened in Gandhinagar in May last week, another Delhi-based broker said.

Investor groups based in Mumbai and Ludhiana have joined the forum to collectively stall the corporation's move. The forum had invited more investors across the country to approach it through e-mail at 'ssnnlforum@yours.com', Singhal said.

Earlier, the corporation had sent notices to bondholders, informing them of its plan to redeem high cost bonds nine years before their redemption in January 2014, subject to their approval. The corporation has convened a bondholders meet on May 28 in Gandhinagar for getting their approval in prepaying the bonds.

The prepayment would result in a Rs 6,100 crore savings by the Gujarat government backed institution. The corporation had issued the bonds bearing interest rate of 17 per cent on Jaunary 1994, but did not provide for a "call option" to reedeem them before 2014.

It plans to redeem the bonds, which were issued at Rs 3,600 per unit, at Rs 25,000 on January 2005, subject to the approval of bondholders.

The corporation had sold the deep-discount bonds, promising to repay Rs 111,000 on January 2014.

Investors had the choice to encash the bonds on the 7th year at Rs 12,500, or on the 11th year at Rs 25,000, or on the 15th year at Rs 50,000.