MUMBAI, Aug 13: Foreign banks have expressed displeasure over the terms indicated in the proposed bonds issue of the Maharashtra State Electricity Board (MSEB). The banks have said that they will not subscribe to MSEB's bonds if they carry a five-year moratorium on coupon-servicing.

Contrary to the optimism expressed by state energy secretary Asoke Basak that foreign banks will queue up to lend money to MSEB, these banks have, for the moment, given a thumbs down signal. MSEB requires at least Rs 700 crore to pick up a 30 per cent stake in Dabhol Power Company.

According to banking sources, MSEB's investment banker JM Financial is reported to have held talks with several leading international banks operating in the country on the financing modalities of a 30 per cent MSEB stake in DPC.

Informed sources said that JM Financial approached the financial advisor to DPC's project - Bank of America - to bail it out of the present situation, which includes the floatation of bonds, and subscription to the same.

Sources close to DPC said that "they were not inclined to lend monies to MSEB as its financial condition is not up to the mark", and added: "A Maharashtra state government guarantee to back up MSEB did not by itself amount to anything. In any case, a five year moratorium as sought by MSEB in the servicing of the interest on the bonds to be floated is a tough bargain, whatever reasons MSEB may offer".

The tenure of these bonds is now indicated to be around 7 years.MSEB, according to sources, is keen on a five year moratorium on the grounds that dividends will start accruing on its investment in DPC's equity structure only after five years. This, however, is considered too long by most bankers involved in the talks.

Lenders will have the first charge on DPC's cash flows. "It is only after servicing the loans that the promoters can think of dividends", said DPC spokesperson, Vrinda Walwalkar.

Sources pointed out that financial advisor BankAm, and ABN Amro Bank already have a $150 million exposure on the loan side and that it is unlikely that these two will now be keen to take an exposure on the equity side of the project.

As things stand, only the developmental financial institutions, and a few big state run banks can probably bail out MSEB.

Sources, however pointed out that even the FIs may not oblige MSEB. If that happens, MSEB may have to scout around with other state run bodies to subcribe to these bonds.

DPC, promoted by Enron, Bechtel, and GE will set up a 2,450 mw power project in the state. Phase 1 with 826 mw is slated for commissioning next year.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.