Government to repurchase sovereign bonds worth Rs 10,000 crore

The government has decided to repurchase a series of sovereign bonds at least two months earlier than the scheduled maturity in January next year, signaling New Delhi's comfortable cash balance.

The bonds, which offered 6.25 per cent, will be repurchased through reverse auction for an aggregate amount of Rs 10,000 crore, the Reserve Bank of India said late Thursday. The proposed electronic auction will take place next Monday.

"The repurchase by the government of India will be undertaken to redeem prematurely the government stocks by utilising surplus cash balances. The above repurchase of the Government Stocks is purely ad hoc in nature."

Dealers said the move indicates that the government now has a comfortable cash balance that can be used to repay bond holders.

"The government may be cash surplus after tax collections," said Piyush Wadhwa, head of rates trading at IDFC Bank. "It is using the surplus to repay the liability early. This is a positive sign for the debt market as it shows fiscal prudence."

The securities were probably sold in 2008, dealers said, and the latest stock would be about Rs 16,000-17,000 crore.