How many masala bonds with CDPQ? Can Isaac give a clear answer?

It looks like there is some more spice left in the 'masala bond' issue even though Kerala finance minister T M Thomas Isaac had blunted the charges hurled by the opposition during a discussion in the Assembly on May 28.

There are questions that Isaac had quite mysteriously left unanswered. Take for instance a crucial question posed by young Congress legislator K S Sabarinathan, who had moved the adjournment motion on May 28. “I suspect that CDPQ (the Canadian company the opposition alleges has crucial stakes in the controversial SNC-Lavalin company) has purchased more than 90 per cent of the bonds issued by KIIFB,” he said. “Will the finance minister be kind enough to tell the house the extent of KIIFB masala bonds with CDPQ,” he asked.

Isaac was not so kind. He ignored the question. Sabarinathan did not press the question either, probably because there was not much time for him during the discussion.

But the very next day, on May 29, the finance minister gave a hint of what he would have said had Sabarinathan insisted on an answer during the adjournment motion. In a written reply given in the Assembly on May 29 to UDF MLAs, including Sabarinathan, who wanted to know the quantity of KIIFB masala bonds CDPQ had purchased, Isaac said that 16 companies including CDPQ had invested in KIIFB's masala bonds.

The most he would concede is this. “CDPQ is just a major investor.” Isaac but refused to reveal the share each had secured. “The information that KIIFB has is based on the day the transaction was carried out. If we take into account the chances for the sale of these bonds in the secondary market, it will not be possible to ascertain the extent of bonds held by these investors,” Isaac said.

In other words, it meant that the government feels that it was likely that the investors had already sold the bonds in secondary market. The KIIFB bonds can either be sold as a premium bond, where the interest rate would be higher than its original rate of 9.72 per cent. It can also be sold as a discount bond, when the original investors sell them at a discount price in a sort of distress sale.

Sabarinathan contends that no investor coming to the London Stock Exchange would want to sell the bonds in the secondary market, hinting that Isaac was only resorting to obscure jargon to sidestep the question of how much bonds the CDPQ holds.

The main opposition charge is that the LDF government had allowed CDPQ to profit from KIIFB's masala bonds. The coupon rate of 9.72 per cent, they say, is exorbitant. In the Quebec-based Canadian company CDPQ, the opposition had found a political trump card. It was found that CDPQ has stakes in SNC-Lavalin, the controversial company with whom Pinarayi Vijayan had entered into an allegedly corrupt deal while he was power minister in 1995.

The opposition suspects that the entire masala bond deal was nothing but an attempt to help SNC-Lavalin through CDPQ. “The KIIFB bonds have a low BB rating. It has as much value as a mark list with only C-plus scores. No investor worth his salt is going to purchase these bonds,” Sabarinathan said. So, the argument goes, the coupon rate was conveniently kept high for the benefit of the sole company that was willing to purchase them.

Isaac but brushes aside the Lavalin connection. “It is true that CDPQ holds Lavalin's shares, but only 19.9 per cent. This is kept so because CDPQ has no intention of taking control of SNC-Lavalin. CDPQ is a government-controlled pension fund that has investments in 68 countries. They have investments in over 775 companies in Canada alone, not just in SNC-Lavalin. They have made a total investment of over Rs 15.4 lakh crore across the world, and this includes Rs 32,000 crore in India,” Isaac said.