Vidarbha Irrigation To Issue Maiden Rs 100cr Bonds

The Vidarbha Irrigation Development Corporation (VIDC), a Maharashtra government undertaking set up in early 1997 to develop the state's irrigation capacity, will be entering the capital market with a bond issue for the first time. The issue has been rated AA- (S.O.) by Crisil indicating high safety. The money is being raised to part finance irrigation project in Maharashtra.

The project involves tapping the waters of the Godavri and Tapi rivers in Maharashtra as well as development of hydro-electric plant. The issue, which is in nature a structured obligation, is of Rs 100 crore with a greenshoe option of another Rs 100 crore. The maturity of the paper will be seven years and has a coupon rate of 15.75 per cent which is high when compared to other issues of a similar tenor.

 

This is indicative of the element of risk involved with an infrastructure project being set up in the rural areas.

The paper will have a put and call option at the end of the fifth year. Otherwise, it will be redeemed in two equal installments in the sixth and seventh year. The issue comes with upfront discount which includes:

lFor subscription less than Rs 5 crore the discount will be 1.0 per cent;

lFor investments between Rs 5 crore and less than Rs 10 crore, the discount offered will be 1.5 per cent.

lFor subscription of Rs 10 crore and above, it will be 2.0 per cent.

The issue is being jointly managed by SBI Capital Markets, DSP Merill Lynch and Canara Bank. The issue will open on June 18, 1997 and will close on July 2, 1997. Under the structured payment system an agreement has been entered into by Maharashtra and VIDC in which the SBI is a trustee. As per the agreement, in case the cash flow from the project is not enough to service the loan - including the interest and principal - then the Maharashtra govt will make the payment out of its budgetary allocation.

The lead managers will be placing the paper privately and will approach all banks, provident funds, and insurance companies.