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The bonds are likely to be privately placed or through structured deals and/or availing term loans from commercial banks during the current fiscal.

BANGALORE, Dec. 3

KARNATAKA Neeravari Nigam Ltd (KNNL) plans to raise Rs 225 crore through sale of bonds or debentures before end-March 2003.

The bonds are likely to be privately placed or through structured deals and/or availing term loans from commercial banks during the current fiscal. The bonds/debentures and the term loans would be guaranteed by the Government of Karnataka for interest payment and repayment of the principal.

The State-owned water utility is currently in the process of raising Rs 125 crore through sale of bonds in the market. The bonds would be placed privately to banks and financial institutions. The issue has been rated by ICRA at LA+(SO), Government officials said. The bonds carry a coupon rate of 10.66 per cent and redemption would be at end of sixth and seventh year. "This is the first tranche of the proposed borrowings", officials added.

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 with more duty of water 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 special purpose vehicles (SPV) 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 like the Krishna Bhagya Jala Nigam Ltd ( KBJNL) 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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