SSNL bond holders seek stay on call option move

Deep discount bond holders of Sardar Sarovar Nigam Ltd (SSNL) are in the process of obtaining a court stay on a special resolution meeting called by the company on May 28 to insert a call option for early redemption of the bonds.

According to one of the bond holders, early redemption will amount to a loss of around Rs 25,000 per bond.

"We have also written to the Securities and Exchange Board of India (Sebi) and sought its opinion," he added.

Sebi is of the view that if the original offer document does not contain the provision for a call option, it cannot be inserted later on, unless there is specific permission from the bondholders. Therefore, SSNL cannot hold a meeting on its own and change the terms.

Following complaints from bondholders and reports, Sebi had sought details from the Employees Provident Fund Organisation (EPFO) to ascertain whether it had subscribed to the issue.

Sebi also intimated SSNL that a call option can be inserted only with the bondholders' approval.

As far as methodology is concerned, Sebi officials said the company could resort to the options for changes as specified in the original prospectus. The original prospectus did not provide for a call option.

Incidentally, bond's price has come down drastically after the special resolution meeting announcement.

EPFO officials said that they do not have any substantial holding of these deep discount bonds.

The bond holders have been irked by the fact that the company has asked for early redemption after promising above 18 per cent returns for 20 years. The payments were to be made at the end of 20 years.

Bondholders said investors will lose more than Rs 20,000 crore at today's rates.

The difference in the redemption price of Rs 25,000 and the expected market price of Rs 50,000 considering a yield to maturity at 9.25 per cent for 9 years.