The Hindu Business Line : Karnataka Neeravari Nigam plans Rs 200-cr bond issue

These bonds will carry State Government guarantee and is part of Rs 350 crore scheduled to be raised by this special purpose vehicle (SPV) in the current fiscal.

The Government had earlier said that it would guarantee up to Rs 250 crore raised by the SPV in the current financial year.

The State utility raised Rs 174.20 crore in its first tranche last fiscal through privately placing bonds at a coupon rate of 10.66 per cent.

The second tranche was for Rs 75 crore issue, which implied that the utility exhausted the Government guaranteed bond issue for the last year.

The Nigam is a special purpose vehicle set up by the State Government to give more thrust to new areas of development such as participatory irrigation management, encouragement to modern irrigation practices and exploration of new possibility of conjunctive use of water.

However, it may be mentioned that the World Bank-initiated fiscal correction measures in Karnataka are under pressure from escalating contingent liabilities.

Contingent liabilities build-up is almost entirely through guarantees provided to State public sector undertakings and SPVs for borrowings.

Such guarantees are provided to help these undertakings raise funds from the financial markets, banks and term-lending institutions.

For the current financial year, the State Government's outstanding guarantees are estimated to be Rs 10,325.16 crore, according to Government sources. States have been resorting to off-budget borrowings since the last five years.

Although there is a legal ceiling on guarantees restricting it to 80 per cent of the previous year's actual revenue receipts in Karnataka, SPVs such as Krishna Bhagya Jala Nigam Ltd and KNNL are exempted from the ceilings.

These two companies account for about 70 per cent of the estimated gross off budget borrowings of Rs 1,480 crore, and bulk of it is used to refinance the maturing liabilities.

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