The irrigation projects will be implemented by Maharashtra Krishna Valley Development Corporation, Vidarbha Irrigation Development Corporation, Tapi Irrigation Development Corporation and Konkan Irrigation Development Corporation. Crisil has given an AA-(so) rating to all these corporations.

The bonds are unconditionally and irrevocably guaranteed by the state government. DSP Merrill Lynch, JM Financial and Kotak Mahindra Capital Company will be the arrangers.

Irrigation minister Eknath Khadase told this paper that the department turned down merchant and investment bankers demand to increase the rate of interest from 14.50 per cent to atleast 15.50 per cent.

The 14.50 per cent rate was fixed by the empowered committee headed bystate chief secretary P Subrahmaniam for approaching market by irrigation department, Maharashtra Water Authority (Rs 500 crore) and Maharashtra State Electricity Board (Rs 500 crore).

Merchant and investment bankers had pleaded that the rate of interest should be different as the ratings given by Crisil were different for these organisations. Crisil has given an AA rating to the MSEB and Maharashtra Water Authority which has already floated the Rs 350-crore bond issue with Rs 150 crore greenshoe option from September 5. It has appointed SBI Capital Markets as lead-arranger and Kotak Mahindra, RR Financial Consultants and Allianz Capital & Management Services as arrangers.

However, in case of rate of commission fixed at 0.2 per cent by the empowered committee, the irrigation department has introduced an incentive clause and according to it those who will manage to receive more investments will be given higher commission.

The irrigation department has decided to raise another Rs 500 crore through billdiscounting and loan to be used for these corporations. About Rs 750 crore will be needed by the Maharashtra Krishna Valley Development Corporation to make payments to the erring contractors who have threatened to go on fast from September 14 in front of Shanivarwada, Pune.

The irrigation department's decision to approach the market and resort to bill-discounting and loans to raise Rs 1,000 crore is important as merchant and investment bankers had advised not to go for composite bond issue in view of volatile market conditions. They had also pressed for necessary budgetary support to be made by the state government for repayment.

The issue of timely servicing of financial obligations on the proposed bond issue is being addressed through a tripartite agreement between each of the corporations, the state government and the trustees to the bondholders.