The MPEB debt instrument, backed by a state government guarantee, offers 50 basis points more than the Rs 350-crore bond issue of the Maharashtra Jeevan Pradhikaran. The MJP issue, which was also backed by a state government guarantee, carried a coupon of 14.50 per cent.

The MPBE issue -- which opened on October 15 -- will close on November 21. SBI Capital Markets is the co-lead arranger of the issue.

The issue offers three options to investors. Besides the vanilla option offering a 15 per cent coupon, the issue offers tax benefits under Section 54EA and 54EB of the Income-tax Act. It offers a coupon of 14 per cent (and yield of 14.49 per cent) with capital gains exemption under Section 54EA with a redemption in the ratio of 33:33:34 at the endof five, six and seven years.

The third option is a coupon of 14.50 per cent (15.03 per cent yield) offering tax exemption under Section 54EB. In this case, investors will be given a one-shot bullet repayment at the end of seven years.

Industrial Development Bank of India (IDBI) in its Flexibond IV issue, which closed last week, offered a yield of 14 per cent annually for its seven-year regular income bond with a put option at the end of five years at 13.75 per cent.

ICICI, another term-lending institution, will launch its fourth tranche of safety bonds on October 26, offering a growing interest of 11 per cent in the first year to 18 per cent in the seventh year for its encash bonds.

Even Reliance Telecom (RTL) currently offers 11 per cent on its 10-year tax-free instrument. Nuclear Power Corporation, a public sector undertaking, offered an yield of 10-10.5 per cent for a 15-year paper early this month.

At present, in the secondary market, a seven-year paper offers a yield of 12.10-12.15 per cent,about 290 basis points lower than the bonds offered by MPEB. Even 10-year bonds offer an yield of 12.30 per cent, 270 basis points lower than the MPEB bonds.