The tenor of the instrument is seven years and redemption will be made in three instalments - 35 per cent each at the end of fifth and sixth year from the date of allotment and 30 per cent at the end of seventh year. This is the third bond issue of TNEB in that many years and like the previous ones it is irrevocably and unconditionally guaranteed by the government of Tamil Nadu. Prompt payment of interest and repayment of principle is ensured through an escrow mechanism also.

The bond issue is targeted at banks, financial institutions, gratuity funds, provident funds, regional rural banks, mutual funds, NBFCs and high net worth individuals. An yield of 11.99 per cent is definitely attractive, say money managers especially considering the fact that the bonds are guaranteed by the Tamil Nadu government. With rates of interest on public provident fund slashed to 11 per cent, this issue could be of good interest to provident funds too, they added.

The previous two issues of TNEB had received overwhelming response with the state power utility exercising the greenshoe options in full. The banks and financial institutions which are flush with funds are hampered by lack of very safe investment opportunities that offer decent returns. These issues which carry a government guarantee are lapped up quickly. TNEB's Rs 500 crore bond issue last year which was also lead managed by PNB Caps was subscribed in full by just 100 investors.

What seems to have attracted the investors, apart from the security aspect, is the position of TNEB as one of the countries better managed power utility. Its average rate of return on assets at 6.04 per cent is far higher than three per cent fixed for state electricity boards (SEBs). Plant load factor of TNEB is a high 72.29 per cent as against the base norm of 60.30 per cent while the T&D losses are put at 16.75 per cent compared to the industry average of 21.20 per cent. Tamil Nadu which is presently facing power shortage is likely to become a surplus state in 2001-02 with some of the independent power producers (IPPs) who have bagged escrow cover commencing generation.

The state continues to offer free power to the farmer which is subsidised partly by the local government. Though reports have appeared in the media about debundling of power generation, transmission and distribution, no significant steps have been taken to reform the state power utility.