Failure of MKVDC bonds jolts State Govt’s market plans

According to sources the total subscription is unlikely to go beyond Rs 350 crore. Meanwhile the government is considering extending the closure date for the issue.

Sources inthe capital market attribute the failure of the issue to the severe liquidity crunch in the money market. The roller coaster slide of the rupee contributed to the problem.

The investors are more concerned about financial health of the Krishna Valley Development Corporation which has delayed payments to contractors in the past few months. Though there is no clear figure of held over payment, the sources say it could be anywhere between Rs 800 crore to Rs 1000 crore.

The State Government on its part has failed to make the adequate budgetary provision for the payment of interest on the funds raised by the corporation from the market earlier, market sources say. The corporation has already raised Rs 975.45 crore at higher interest rates of 17.5 and 18 per cent.

It may be recalled that the government had to transfer Rs 25 crore from Vidarbha Irrigation Development Corporation to MKVDC to pay up the wage bill of the latter. Though the government had said the transfer of funds was just an exercise in surplusfund management, the money market has been skeptical about the government’s claims.

The MKVDC set up in 1996 has had a total budgetary allocation of Rs 1,926 since, while Rs 975.45 crore has been raised from the market.

In 1998-99 the corporation needs to raise Rs 1,500 crore through market borrowing in addition to the budgetary allocation of Rs 1,000 crore. Similarly, in the year 1999-2000 the government would need to borrow Rs 800 crore from the market and Rs 400 crore in the following year.

But with the money market showing no signs of revival coupled with the sagging financial health of the State Government, the borrowing plans may come to nought.

Early, this year the government had planned to float composite bonds of Rs 1,000 crore for MKVDC, Konkan Development Corporation, Vidarbha Irrigation Development Corporation and Tapti Valley Irrigation Development Corporation. The issue amount was, however, reduced later to Rs 500 crore.