KBJNL offers a 14.75 per cent coupon on the seven-year paper -- 25 basis points lower than the 15 per cent coupon on the NCD of Madhya Pradesh Electricity Board (MPEB).

The coupon offered by KBJNL is about 265 basis point higher than a seven-year government paper in the secondary market. At present, in the secondary market, a seven-year paper offers a yield of 12.10-12.15 per cent and a 10-year bond a yield of 12.30 per cent -- 245 basis points lower than the KBJNL bond.

The KBJNL issue has a put or call option at the end of five years. The issue which opened on October 26, 1998, will close on November 30. SBI Capital market is the lead manager of the issue. The bonds will be listed on the National StockExchange.

The KBJNL issue is guaranteed by the government of Karnataka. For the company's series VII bond issue, the Karnataka government has extended a nominal value of Rs 800 crore to be raised in different tranches during 1998-1999 and redeemable between 2004 and 2006. Out of the total Rs 800 crore, the company has so far raised Rs 320.20 crore. The ongoing issue is guaranteed to an extent of Rs 470.80 crore.

In order to ensure security to the bond-holders, KBJNL has entered into a tripartite agreement with the state government and Vijaya Bank -- trustees to the bond-holders. Under the terms of the agreement, the state government will assure budgetary support for servicing the bonds.

Rating agency Crisil has assigned an A rating (structured obligation) to the KBJNL issue, ensuring moderate safety.

As per the tripartite agreement, for ensuring timely payment to the bond-holders, the company has opened an escrow account and no lien account with Vijaya Bank and State Bank of India.

The fund raisedfrom the issue would be utilised for part-financing the ongoing upper Krishna project in Karnataka.

The company has raised Rs 4,338.49 crore for its proposed project. Out of the total amount raised, the company has taken a Rs 545-crore loan from World Bank, budgetary support worth Rs 1,537.85 crore from the state government, raised Rs 119 crore through accelerated irrigation benefit programme, Rs 1,819.26 crore through market borrowing, Rs 257.90 crore through short-term borrowings and Rs 59.48 crore through interest on short-term deposits.

KBJNL will raise another Rs 2,763.87 crore for its project out of which Rs 1,338.53 crore will come through the state government budgetary support, Rs 147 crore through accelerated irrigation benefit program, Rs 1,260.74 crore through market borrowing and another 17.60 crore through interest on short-term deposits.