| Andhra Pradesh Capital Region Development Authority | ||
| Rating continues on 'Watch Negative' | ||
| Rating Action | ||
| ||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings continues its rating on the bonds issued by Andhra Pradesh Capital Region Development Authority (APCRDA) on ‘Rating Watch with Negative Implications’.
CRISIL Ratings takes note of the receipt of Rs 178 crore by APCRDA in its bond servicing account (BSA) against the bills raised with the government of Andhra Pradesh (GoAP) in August 2023. Post the receipt of these funds, the combined BSA and debt service reserve account (DSRA) balance has gone up to ~Rs 269 crore, sufficient to meet debt obligation of ~Rs 150 crore due on February 16, 2024. However, the balances in the BSA and DSRA are still not in line with the T-structure of the bonds guaranteed by GoAP.
On January 31, 2024, CRISIL Ratings had downgraded its rating on the bond programme of APCRDA to ‘CRISIL BB+(CE)’ from CRISIL BBB (CE), while the rating continued on ‘Watch Negative’ on account of continuing delays in restoration of the DSRA and BSA, as well as frequent non-adherence to the T-structure for the bonds issued by APCRDA and guaranteed by the GoAP. Also, the liquidity position of APCRDA was inadequate at that time to service the repayment of Rs ~150 crore due on February 16, 2024.
The BSA and DSRA deficit was expected to be met through the supplementary budget (Rs 570 crore) from the GoAP. Approval for the supplementary budget was received on November 3, 2023. APCRDA had separately requested the GoAP for bills of Rs 178 crore (on August 16, 2023) and Rs 251.92 crore (on November 16, 2023) for replenishing the DSRA and BSA. While bills of Rs 178 crore have been cleared, APCRDA is yet to receive the funds against the bills of Rs 251.92 crore in the designated accounts. Replenishment of the DSRA and BSA in line with the T-structure remains a key requirement for the resolution of the negative rating watch.
The rating is also constrained by the continuing liquidity strain on the finances of GoAP due to elevated revenue deficit (27.6% of revenue receipts for fiscal 2023) and high indebtedness (43% of gross state domestic product [GSDP] in fiscal 2023 versus 46% in fiscal 2021 and 45% in fiscal 2022; CAG provisional financials). This is likely to continue over the medium term as well, considering the high revenue expenditure of the state. Furthermore, the economic management of the state is weak due to reliance on ways and means advances, overdraft facility and special drawing facilities extended by the Reserve Bank of India (RBI). |
Analytical Approach CRISIL Ratings has applied its criteria for rating instruments backed by guarantees. |
Key Rating Drivers & Detailed Description Strengths: Presence of guarantee from GoAP The issuance benefits from the unconditional and irrevocable guarantee from the GoAP for both interest and principal obligation and independent trustee monitoring mechanism.
Weaknesses: Continuing non-adherence to the T-structure and the payment mechanism The bonds issued by APCRDA are backed by a well-defined T-structured guarantee trigger mechanism. However, the T-structure is not being adhered to since the last repayment that was due on November 16, 2023, where the trustee dipped into the DSRA on November 9, 2023, as the account was not sufficiently funded to meet the obligation, and used Rs ~131 crore to partially fund the obligation of ~Rs 150 crore. The DSRA and BSA have not been replenished since then. The current DSRA and BSA balance is ~Rs 269 crore against the required balance of ~Rs 520 crore as per the T-structure. In August 2022, too, the trustee had dipped into the DSRA to meet debt obligations due to insufficient balance in the BSA, which was subsequently topped up. Adherence to the T-structure, maintenance of the DSRA and timely support from the GoAP remain monitorable.
Modest economic structure of Andhra Pradesh The state has a weak economic structure with lower-than-average share of the secondary sector and higher share of the primary sector in the GSDP. This has an adverse impact on the tax to GSDP ratio as the secondary and tertiary sectors have higher tax potential. Socio-economic and human development indicators are modest (for instance, literacy rate is 67% versus the national average of 74%), thereby necessitating higher social outlay. That said, Andhra Pradesh has high per capita income and rapid GSDP growth, driven by improved tertiary and primary sectors.
High deficit and indebtedness with average economic management In fiscal 2023, based on CAG provisional financials, the state revenue rose 2.5% on-year because of growth in collection of goods and services tax (GST). The state received revenue deficit grants of Rs 10,549 crore in fiscal 2023 against Rs 17,257 crore in fiscal 2022, based on the Fifteenth Finance Commission recommendation. The tax revenue of the state (includes own taxes and share in central taxes) increased 9.5% in fiscal 2023 against growth of 24% in fiscal 2022 on a low base.
On the other hand, revenue expenses increased 26% and 16% on-year in fiscals 2023 and 2022, respectively. Hence, revenue deficit to revenue receipts increased to 28% in fiscal 2023 from 4% in fiscal 2022. The lower revenue deficit in fiscal 2022 was supported by GST compensation cess and loans from the Centre.
Capital outlays have been under review in Andhra Pradesh and reduced by 56% on-year in fiscal 2023 and 14% in fiscal 2022. Gross fiscal deficit (GFD) to GSDP ratio increased to 3.8% in fiscal 2023 from 1.9% in fiscal 2022. It is expected to remain elevated in the near term owing to higher revenue deficit and moderate capital expenditure. Although total debt plus guarantee to GSDP ratio improved to 43% in fiscal 2023, it remained high (45% and 44% in fiscals 2023 and 2022, respectively). Andhra Pradesh continues to rely on ways and means advances, overdraft and special drawing facilities extended by the RBI to manage cash flow mismatches. |
Liquidity: Stretched The T-structure requires the presence of two quarters of DSRA and 1.5 times the debt obligation in the BSA. However, as on February 8, 2024, APCRDA had ~Rs 83 crore in the DSRA against requirement of ~Rs 300 crore and Rs ~185 crore in the BSA against requirement of ~Rs 225 crore. APCRDA had raised bills of ~Rs 252 crore in November 2023 post the receipt of the supplementary budget of ~Rs 570 crore from the GoAP for meeting the requirements as per the T-structure, but the bills have not yet been cleared by the GoAP. Timely replenishment of the DSRA and BSA and funding support from the GoAP will remain key monitorable. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
|
Adequacy of credit enhancement structure The guarantee provided by the state government is unconditional, irrevocable and covers the entire rated amount of the bonds. A trustee-monitored payment mechanism is in place to ensure timely payment of the interest and principal obligation.
The GoAP has made total budgetary allocation of Rs 500 crore for fiscal 2024 (Rs 531 crore in fiscal 2022) to meet the debt obligation of APCRDA. The initial budgetary allocation was not sufficient for the debt obligation and additional allocation of Rs 570 crore was requested, which was approved in November 2023. As the primary cash flow of APCRDA is likely to remain low, support from the state will remain critical.
Stress scenario CRISIL Ratings believes the GoAP will service the debt for which it has provided guarantee in a timely manner when the cash flow of the borrower may not be adequate for debt servicing. |
Unsupported ratings: ‘CRISIL D’ CRISIL Ratings has introduced a 'CE' suffix for instruments having an explicit credit enhancement feature in compliance with the circular from the Securities and Exchange Board of India dated June 13, 2019. |
Key drivers for unsupported ratings The unsupported rating reflects the delay by APCRDA in servicing debt over the last three months. For instance, the consortium loan interest payment due on October 31, 2023, was paid on November 21, 2023. This delay was attributable to the stretched liquidity position of APCRDA. For arriving at the unsupported rating, CRISIL Ratings has considered the primary cash flow that APCRDA derives from land monetisation as well as budgetary support from the GoAP. Primary cash accrual remains weak, which has been compounded by the reduction in budgetary support from the state government. APCRDA has ~ 3,300 acre of land which it can monetise. |
About the Authority APCRDA was formed under the APCRDA Act, 2014, for the planning, coordination, execution, supervision, financing and funding of the capital region and capital city area of Andhra Pradesh.
GoAP reported financials:
^Including guarantees *CRISIL Ratings-adjusted numbers |
Key Financial Indicators: APCRDA
*Unaudited financials **Provisional |
List of covenants The material covenants of the instruments are as follows:
Salient features of the bonds backed by the state government guarantee:
Annexure 1.1: Transaction structure Timelines to be followed for structured payment mechanism assuming T1 as the first payment date
[1]Standing instruction to the principal banker |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
|