A fortnight after withdrawing the summons against him, the Enforcement Directorate has re-issued summons to former finance minister Thomas Isaac on the masala bond issue.

During Onmanorama's budget conversations on the topic 'KIIFB Crisis: Death of Left Alternative' Isaac sounded more amused than frustrated at the hullaballoo over masala bonds. "I really regret having gone for masala bonds," Isaac said, half in jest.

"The reason I agreed to go for masala bonds is that no state entity had ever taken masala bonds, both in the centre and states. Therefore, we wanted to announce in the Indian money market that there is a new player that can even operate in the international money market, the London Stock Exchange. And the London Stock Exchange identified it as the best bond issue of the year in Asia. So this was to send the message that, ‘yes, we can play the game’," Isaac said.

In other words, floating the masala bonds in the London Stock Exchange on May 17, 2019, was Kerala's equivalent of a ramp walk. The debut offering mopped up Rs 2150 crore.

The ploy seems to have worked. "After that the attitude of all the banks changed," Isaac said. And opting for the world stage was no cake walk either. "It meant rigorous inspections and other strict compliance measures," he added. Top banker and influential business analyst S Adikeshavan said he was surprised that even after the controversy commercial banks had come forward to lend to KIIFB. "The level of borrowings of KIIFB that was around Rs 14,000 crore in March 2022 has gone up to Rs 17,500-18,000 crore in 2023. So what does it indicate? The market is wiling to lend," he said.

Masala bonds are rupee-denominated bonds issued by Indian entities to source funds from a foreign market for infrastructure development. It is denominated in rupees but settled in US dollars. Since interest rates in developed markets are lower, borrowers can obtain funds at lower interest rates compared to prevailing rates in India. Further, this bond is for those interested in investing in India. As for those issuing the bond, the currency risk is borne by investors.

Isaac told Onmanorama that he had to face a lot of "stupidity" in Kerala at the time of floating the masala bonds.

The Opposition UDF took Isaac to task mainly for two issues. One, it was said a special favour was done to a Canadian firm called CDPQ, which the opposition alleged had crucial stakes in the hugely controversial SNC Lavalin company. (Chief minister Pinarayi Vijayan is still fighting a case in which he has been accused of corruption in a deal he had struck with Lavalin for the renovation of Pallivasal, Sengulam and Panniyar hydel projects in 1995 when he was power minister.)

Two, it was said the coupon rate of 9.72 per cent was exorbitant.

Secret pact with SNC Lavalin
It was said that KIIFB did a secret private placement in Canada, specifically for CDPQ. This private placement was indication that the Pinarayi government was eager to see the company with links to SNC-Lavalin profit from a state deal. (CDPQ and Lavalin officials had come to the state in February 2019 to hold negotiations with the LDF government.)

“This was not a secret private placement. We have to make offer circulars for each country on the basis of their rules. Further, the bid was open only to institutional investors, not retail investors. We had no idea about Canada's interest until they came to us. This was why we had to introduce an addendum to incorporate institutional investors in Canada. Moreover, it is not just enough to list our bonds in the London Stock Exchange. The KIIFB will have to convince investors of its credibility. That is why we had conducted road shows in various European countries. We will also have to meet their people and explain our strengths. In some case, they meet us,” Isaac said.

Spicy but unholy interest
It was said the coupon rate of 9.72% was unbelievably high. There were nearly 50 masala bond issues prior to KIIFB's and none had a rate as high as KIIFB's.

Further, it was said that the rate was at least two percent higher than the rate at which many public sector companies like National Highway Authority of India and NTPC had issued masala bonds.

“If we wanted the money at that point, this was the best available rate. We had attempted to mobilise the money from the domestic market but the interest rate was 10.2%. We tried again later. Then it was 10.25%. It was only then did we go for the masala bond issue.

Moreover, top SEBI and RBI officials we had consulted said that the rate was fair. If the issues of other PSUs like NHAI and NTPC had lesser coupon rate of around 7.8% it was because they were rated higher. The KIIFB bonds, at that point, were rated at least two or three notches below them,” Isaac responded.