| Andhra Pradesh Capital Region Development Authority | ||
| 'CRISIL A+(SO)/Stable' Converted from Provisional Rating to Final Rating for bond | ||
| Rating Action | ||
| ||
| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL has converted the provisional rating assigned to the Rs.2000 crore Bond of Andhra Pradesh Capital Region Development Authority (APCRDA) to final rating of 'CRISIL A+(SO)/Stable'. The executed documents are in line with the transaction terms at the time of provisional rating.
The rating reflects the strength of an unconditional and irrevocable guarantee provided by the Government of Andhra Pradesh (GoAP), a trustee-administered escrow and payment mechanism for the bonds and adequate liquidity in the form of a debt service reserve account (DSRA). The rating also factors in the criticality of APCRDA to the GoAP in developing the capital city of Amaravati. The rating also considers the primary cash flows of APCRDA generated through land monetization which would be used to prioritize debt servicing, although timely and adequate monetization could be a constraint, necessitating GoAP support. The ratings are constrained by the moderate economic structure of the State with a small secondary sector, moderate State finances marked by high deficit and indebtedness levels (albeit impacted by the bifurcation of erstwhile unified AP) and periodic use of WMA limits. These weaknesses are offset partly by the good economic management of the state, with high industry friendliness, relatively healthy power sector and well-targeted productive outlays. |
| Analytical Approach |
|
For arriving at the rating, CRISIL has applied its criteria on rating instruments backed by guarantees. |
| Key Rating Drivers & Detailed Description |
|
Strengths * Presence of a guarantee from GoAP along with a strong payment structure The issuance benefits from an unconditional and irrevocable guarantee from the GoAP for servicing both interest and principal, the credit enhancement provided by a well-defined T-structured guarantee trigger mechanism, an adequate liquidity buffer, and an independent trustee monitoring mechanism. The rating is supported by presence of a 2-quarter upfront DSRA as a liquidity cushion, which lowers the risk of any delay in receipt of payment from the State Government. CRISIL believes that the presence of the adequate liquidity buffers and the trustee oversight mechanism strengthens the payment structure and provides adequate protection from any administrative delay. * Strong support from GoAP due to APCRDA's critical role The GoAP has constituted APCRDA as the core vehicle to build its capital city of Amaravati, which is being developed as an economic hub in addition to being an administrative capital. APCRDA enjoys legislative status, being constituted under the APCRDA Act, and is the designated body for planning, development and regulation of the city. It has wide ranging powers with most line departments of the government reporting to the APCRDA Commissioner. The Authority of APCRDA is chaired by the Chief Minister of GoAP which helps enable faster decision making. The Chief Minister reviews the project on a weekly basis. CRISIL believes that strong support from the government would be extended to APCRDA when required. * Good economic management by Government of Andhra Pradesh The rating factors in the good economic management by GoAP. It has undertaken a number of reforms to increase its industry friendliness (it ranks amongst the highest in Ease of Doing Business). It also has relatively healthy power sector compared to other states necessitating lesser amount of funding support from the GoAP. Further, CRISIL believes that the government is targeting its expenditure well towards developmental objectives like education and irrigation, which are expected to have a positive effect on improving the social and economic indices of the state. * Primary cash flows for debt-servicing through land sale, but timely monetisation could be a challenge APCRDA's primary cash flows for bond servicing are revenues accrued from land monetisation, with potential additional revenue streams from development charges, utility charges etc. CRISIL believes that timely and adequate monetisation for debt servicing could be a constraint, dependent on land appreciation through expected development of the Amaravati. This is partly mitigated by 1.5 times of debt servicing obligation that will be credited 1 quarter in advance. However, the cash flow streams will likely gather strength only in the medium to long term and support from the government will remain critical in meeting APCRDA's debt obligations on a timely basis. Weakness * State has a moderate economic structure Andhra Pradesh has a moderate economic structure marked by a lower-than-average share of secondary sector and higher share of primary sector in Gross State Domestic Product (GSDP). This tilt in economic structure has an adverse impact on the tax/GSDP ratio, as secondary and tertiary sector have a higher tax potential. Its socio-economic and human development indicators are moderate (e.g. literacy rate of 67% versus national average of 74%), necessitating higher social outlays. However, CRISIL believes that the economic structure should improve given the state's industry friendliness and investment in infrastructure. AP also has a fairly high per capita income, and has enjoyed fast GSDP growth driven by growth in the tertiary and primary sectors. * Moderate state finances marked by high deficits and indebtedness, impacted by bifurcation Although erstwhile unified GoAP benefited from revenue surpluses and moderate levels of deficits and indebtedness, residual GoAP's state finances have got impacted due to the state bifurcation in fiscal 2015 with debt apportioned in the population ratio of 58:42 between residual Andhra Pradesh and Telangana. Deficits are on an improving trend'revenue deficit to GSDP is down from 2.43% in FY2017 (Accounts) to 0.5% in FY2018 (Revised estimates) while fiscal deficit to GSDP is down from 4.4% to 3.43%. However, the indebtedness remains high with total debt plus guarantee to GSDP at 32.5% in FY2018 (Revised estimates). CRISIL expects deficits to improve, although continued grants-in-aid by the Central Government would be crucial (30% of total FY2018 revenues). Aggregate debt as share of GSDP should trend down only slowly, given the state's large development needs. The state has moderate liquidity and accesses Ways and Means Advances to manage liquidity and lower interest costs. |
| Outlook: Stable |
|
CRISIL believes APCRDA's bonds will continue to benefit from its strong payment structure and support from GoAP. |
| Key Financial Indicators - CRISIL Adjusted APCRDA's standalone financials: | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| Government of Andhra Pradesh reported financials: | ||||||||||||||||||||||||||||
* Revised Estimates ** Accounts |
|
Any other information
Transaction structure:
1Standing Instruction to the Principal banker |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|