Around 65 per cent of the total subscription has come from the State Bank of India (SBI) and associate banks. SBI Capital Market was the lead arranger to the issue. SBI invested 30 crore while Rs 48 crore came from its associate banks. Other investors included Bank of India (Rs 10 crore), Karnataka Bank (Rs 7 crore), Bank of Maharashtra and United West Bank with a subscription of Rs 5 crore each.

The bonds with a face value of Rs 1 lakh each were also bought by institutions such as United India Assurance and Oriental Assurance. Another reason for the shortfall could be attributed to the Rural Electrification Corporation (REC) which was to have invested Rs 25 crore. According to an MSEB official, the REC board did not take up the issue on July 12, the closing date ofthe issue.

The bond issue was launched last month to part fund the 420 mw expansion of Khaperkheda power project near Nagpur, Maharashtra. MSEB had earlier obtained permission from the CBDT to raise Rs 300 crore through infrastructure bonds with tax benefit under Section 10 (23-G).

The board still has an option to raise money through bonds and plans to approach the market after around three months. Meanwhile, the Power Finance Corporation (PFC) has agreed to lend an additional Rs 150 crore for the Khaperkheda plant. The money will be used to buy plant equipment. The finance company had earlier provided Rs 350 crore to MSEB for the same project.

The funds from the PFC and proceeds of the bond issue will allow MSEB to continue construction of the plant for at least another four months, the official said. The monthly expenditure on the project is around Rs 50 crore and before the existing fund is used, the board will launch the second tranche.

The recent issue with LAA (SO) credit rating by Icra and leadmanaged by SBI Capital Market, JM Morgan Stanley was targeted at corporates with large tax liabilities. The Rs 1 lakh each bond carried an interest rate of 12 per cent payable semi-annually. However, 13.50 per cent interest is assured if the subscriber cannot draw the tax rebate. This is because the CBDT is yet to clarify if the tax relief is given on gross or net income. As of now, it maintains that the decision will be on a case-to-case basis.

The expansion of the Khaperkheda plant, which operates two units of 210 mw each, was planned around three years ago. The Rs 1,366 crore expansion includes setting up two new units of the same size. Work at the site is progressing as per schedule and the proposed Units III and IV of the coal-fired station are expected to start production by March and September next year.