Just wanted to add this here… even so-called state govt-backed bonds can be “risky”…
People, including senior citizens, invested in APPFCL bonds based on the guarantee of the Andhra Pradesh government. Back then, the AP government assured investors, saying, “If APPFCL can’t pay, don’t worry, we’ll step in!” But when the time for repayment arrived, a section of bondholders was left high and dry!
Why did this happen?
In 2014, the state of Andhra Pradesh was split into two—Telangana and Andhra Pradesh (AP). However, many bonds had been issued prior to this bifurcation.
As a result, the bond liabilities of APPFCL were divided between the two states. Although APPFCL retained the bonds, they classified them into two categories: 1) those to be serviced by AP and 2) those owed by Telangana.
The split was 40% for AP and 60% for Telangana.
The issue arose when Telangana challenged the division of the Rs. 5,894 crore bonds that had been issued by the former unified Andhra Pradesh. As a result, some bondholders have not received their interest and principal payments, with the last maturity date now passed for over six months.
While AP claims to have settled all its dues, Telangana still owes Rs. 1,927 crore. The CFO and MD of APPFCL have stated that they will resolve the remaining bondholders’ claims as soon as Telangana settles its dues.
Bondholders are unclear about how the bonds were divided. While not receiving payments is frustrating, it’s even more frustrating to see others getting paid on time while they are left waiting. The bond trustee cannot demand payment from Telangana, as they are not a party to the bond agreement.
Even as I was reading the piece, my bond story flashed in front of my eyes all over again… At one point when I was desperate to earn monthly interest, I had invested my funds in FDs of KTDFC & TNPFC because of the high rates they promised… I knew the risk I was taking of c…But I went in with open eyes… “govt backed” so we will see what to do if & when something happens… Earlier this year, I exited all of that… FDs are even worse than bonds… Didn’t get stung though! Thank God for small mercies…
Do read this story of APPFCL bond default here:
Investors in this government-guaranteed bond have been left high and dry | Mint