Mkvdc Bond Rollover Flounders

The cash-strapped Maharashtra Krishna Valley Development Corporation (MKVDC) has received a lukewarm response from bond holders to its proposal to roll-over its first series of bonds.

MKDVC has offered bond holders three tenure options for rolling over existing bonds: seven, 10 and 12-years at an interest rate of 11.5 per cent, 12 per cent and 12.5 per cent, respectively. The fresh rolled over bonds will have a put and call option of five, seven and 10 years, respectively.

MKVDC has issued about nine series of bonds to date and has off late found it difficult to service these obligations due to the fiscal crunch faced by the state government. Letters were sent out to investors including financial institutions and retail investors 15 days prior to the redemption date of August 15 for rolling over the bond issue.

According to MKVDC sources: "We have received applications from bond holders for roll over to the tune of Rs 6 crore so far, of the identified Rs 213.8 crore corpus that comprises the first tranche from the 1996 series".

The irrigation corporation floated a Rs 427-crore bond issue in 1996 where it offered a coupon rate of 17.5 per cent. The first tranche came up for redemption on August 15, 2002, and the second tranche will come up for redemption the next year.

According to officials, should investors not choose to roll over the bonds, arrangements have already been made with the Maharashtra government to fund the balance amount, since the bond issue is backed by state government guarantee.

"This mechanism has been put into place by the state government in the wake of bad publicity following the downgrading of its bond issues by all the three rating agencies: Crisil, Icra and CARE," said officials.

The downgrading was spurred by the recent failure by MKVDC and Konkan Irrigation Development Corporation to make interest payments on their bond issues.