| Andhra Pradesh Power Finance Corporation Limited | ||||||||||||
| 'Provisional CRISIL A+(SO)/Stable' assigned to bond | ||||||||||||
| Rating Action | ||||||||||||
| ||||||||||||
| 1 crore = 10 million | ||||||||||||
| Refer to annexure for Details of Instruments & Bank Facilities *Amount outstanding as on March 31, 2013 ^A prefix of 'Provisional' indicates that the rating centrally factors in strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a directive issued by the Securities and Exchange Board of India (SEBI) on May 6, 2015. |
| Detailed Rationale |
|
CRISIL has assigned its 'Provisional CRISIL A+(SO)/Stable' rating to the proposed Rs 5000 crore bond issuance of Andhra Pradesh Power Finance Corporation Limited (APPFC). The provisional rating will be converted after receipt of executed documents, in line with the structure submitted to CRISIL. |
| Analytical Approach |
|
The ratings for the proposed Rs 5,000cr bonds are based on the unconditional and irrevocable guarantee from the bifurcated GoAP, guaranteeing full repayment of the principal and payment of interest in a timely manner. The ratings also factored in the strength of a trustee-administered payment structure. |
| Key Rating Drivers & Detailed Description |
|
Strengths: * Presence of a comprehensive guarantee from GoAP along with a strong payment structure The proposed issuance benefits from budgetary allocation by the GoAP in meeting interest and principal obligations. Additionally, it derives support from an unconditional and irrevocable guarantee from the bifurcated GoAP. The guarantee is also continuing and the liability of the guarantor shall not be revoked by an insolvency, liquidation etc. Furthermore, the structure benefits from 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 critical role of power sector The vidyut bonds issued by APPFC will be used to finance the operational requirements of the Andhra Pradesh power discoms. Power sector enjoys strong support from GoAP owing to its criticality in supporting the ecosystem of the state. Moreover, government supports the agriculture sector and promotes industrialisation by providing subsidized power. APPFC has been formed to provide financial assistance to the power sector in the state. Hence CRISIL believes that strong support from the government would be extended to APPFC, 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. 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 2.4% in FY2017 to 2.0% in FY2018 and 0.3% in FY2019 (Revised Estimates) while fiscal deficit to GSDP is down from 4.4% (FY2017) to 4.0% (FY2018) and 3.2% (FY2019RE). However, the indebtedness remains high with total debt plus guarantee to GSDP at 32.9% in FY2018. CRISIL expects deficits to improve, although continued grants-in-aid by the Central Government would be crucial (22% 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. * Failure of designated payment structure: The rating on the existing bonds factors in the failure of the payment structure and the inability of the trustee to ensure adherence to the trustee-administered structure (non-invocation of guarantee). |
| Liquidity |
|
CRISIL believes that APPFC enjoys adequate liquidity primarily driven by the GoAP support as cashflows for debt servicing forms a part of the budgetary allocation. Additionally, APPFC will maintain a DSRA of 2 quarters on a rolling basis for the proposed bonds. |
| Outlook: Stable |
|
CRISIL believes APPFC's proposed bonds will benefit from its strong payment structure and support from GoAP. |
| About the Company |
|
APPFC was set up to provide financial assistance to the power sector in Andhra Pradesh. In fiscal 2017 as well as fiscal 2016, there was no profit after tax while total income was Rs 215 Crore and Rs 217 crore, respectively. |
| Key Financial Indicators (reported numbers): | ||||||||||||||||||||||||||||
*CRISIL Adjusted Debt |
|
Any other information: Not applicable |
| 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) | |||||||||||||||||||||||||||||||||||||||||||||||||
**Yet to be placed | |||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Rating Withdrawn | |||||||||||||||||||||||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| CRISILs Approach to Financial Ratios |
| Rating Criteria for State Governments |
| For further information contact: | ||||||
|