This announcement has come within a month after the earlier issue was undersubscribed. In early May, the MKVDC entered the market to mop up Rs 500 crore through a bond issue with 13.5 per cent coupon rate and two per cent upfront discount.

The issue was opened on May 8 and was slated for closure on June 15. According to sources in Mantralaya, the government could mop up only Rs 400crore, of which Rs 150 crore was contributed by a subsidiary of the State Bank of India called SBI Capital Market. It may be noted here that the SBI Capital Market was the co-ordinator for the issue along with DSP Marril Lynch, Kotak Mahindra, and JM Financial as its lead manager.

The chief minister admitted the failure of the issue. Joshi said the last issue was undersubscribed due to low interest rates. However, he did not speak about the deteriorating financial health of the MKVDC which played a pivotal role in discouraging potential investors. Only last month, the government had to transfer funds from the Vidarbha Irrigation Development Corporation to pay MKVDC's wage bill. Though the government described that move as an exercise in liquidity management, there were not many takers for the government's explanation.

In the past few months, the MKVDC had to delay payments to contractors and in some cases work had come to a standstill. There has not been any official confirmation about the hold overpayment figures, but sources say it could be anywhere between Rs 800 and 1000 crore. The chief minister now says that the next bond issue would have an interest rate which would ensure that the issue was fully subscribed. Before the last issue, the corporation had raised Rs 975.45 crore at high interest rates of 17.5 and 18 per cent. And now there would another Rs 500 crore in the same bracket, which many experts say would be a huge burden on the State exchequer.

The investors' confidence had further declined after the government failed to make adequate budgetary provision for interest payment.

Even if the government succeeded in raising additional Rs 500 crore, the fund crisis for the MKVDC would be far from over. The raised funds would hardly suffice to pay past dues, even as the entire scheme's cost escalated sharply. The chief minister yesterday admitted that the original cost aggregating Rs 7,000 crore had escalated to Rs 10,000 crore.

Sources say that after the failure of the last issue, thegovernment officials had bitter arguments with a certain fund manager. Not many fund managers were willing to work on the government issues.