Confirming the development, a top official of SBI Caps said that the institution is gearing up to structure the securitisation process by which the entire accumulated liability of the SEBs towards NTPC and Coal India can be cleared `upfront'.

"SBI Caps will earn a small fee on the deal towards structuring and syndicating the entire funds," officials said, adding that the merchant banker has already made presentations to these institutions so that the basic framework can be prepared. "SBI Caps will not wait till the budget is passed to finalise the proposals," they said and added that securitisation with a proper guarantee from thegovernment is big business.

After assessing the total liability of the SEBs for these two institutions, SBI Caps will convert the liability into debt papers, which will be transacted by a special purpose vehicle created just for this. A large amount can be raised through the syndication, which will see participation by other banks, financial institutions and mutual funds including Unit Trust of India.

The paper can be traded in the secondary market as they will carry a specific coupon rate matching with the tenure of the paper. These can be either short-term or long-term paper depending upon the requirements. Like commercial paper, these can be rolled over indefinitely.

"SBI Caps has also talked to banks and mutual funds which are prospective buyers in the secondary market," sources said adding that FIIs can also buy the instruments within their ceilings.

"We have got a huge response," they said. There will be no problem in raising resources either through syndication or selling the paper in thesecondary market as it is backed by the Government of India. The dues from SEBs to PSUs are proposed to be securitised which will be about Rs 10,000 crore to be available as government revenue for investment, said an SBI paper on the budget announcement.

This will be a fillip for debt securitisation which has so far been restricted to a few deals by some foreign banks and ICICI. However, while a government guarantee cover would be available to the bank/financial institution extending the loan to PSUs after debt securitisation, the responsibility for recovery of the original loan would still remain with the SEBs causing a moral hazard situation, said the paper.

Insight

The securitisation of the dues of the state electricity boards to NTPC and Coal India, backed by a government guarantee, represents an innovative step forward in freeing blocked resources. The inability to reform the state electricity boards has been a major hindrance to reform, and such innovative financial engineering is needed tofind solutions to the problem.

With the enhanced comfort of a government guarantee, SBI Caps should have little difficulty in offloading the bonds to banks and financial institutions at fine rates.