Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Non Convertible Debentures (NCD) 2000.00 ACUITE BBB+ | CE | Stable | Downgraded -
Total Outstanding Quantum (Rs. Cr) 2000.00 - -

Erratum: In the original PR dated September 01, 2022, the Material Covenants and Assessment of Adequacy of CE Structure were not mentioned which has now been included in this version.
Rating Rationale

­Acuité has downgraded its long term rating to ACUITE BBB+ (CE) (read as ACUITE triple B plus (Credit Enhancement)) from ACUITE A+ (CE) (read as ACUITE A plus (Credit Enhancement)) on the Rs.2000.00 Cr. Non-Convertible Debentures of Andhra Pradesh Capital Region Development Authority (APCRDA). The outlook remains 'stable.'


The downgrade in the rating has been primarily on account of non-adherence to the stipulated transaction structure. As per the T structure, GoAP had to ensure that the bond servicing account had adequate funds equivalent to 1.5 times of the upcoming debt service obligation and in case if the same is not done by T-7 days, funds have to be transferred from the existing DSRA by the trustee. Acuite has noted that the bond servicing account was not funded as per the terms before the previous interest due date and the trustee had to tap into the DSRA to partially service the interest. This resulted in a shortfall in the DSRA which is to be maintained at a level equivalent to next 2 quarters of debt servicing obligation. While the DSRA has been subsequently replenished as per the feedback of the trustee, Acuite understands that the bond servicing account is yet to be replenished. The rating action has also been driven by the deterioration in the liquidity position of APCRDA brought about by the lack of timely support from GoAP. 

About the Authority
­The erstwhile state of Andhra Pradesh was bifurcated in to the successor states of Andhra Pradesh (AP) and Telangana in June 2014 vide the Andhra Pradesh Reorganization Act, 2014 act of the Indian Parliament. Andhra Pradesh Capital Region Development Authority (APCRDA) was formed in 2014 under ‘AP Capital Region Development Act 2014’ and is a statutory body under GoAP. The objectives of APCRDA are planning, coordination, execution, and financing for the development of Amaravati. Amaravati is located in Guntur district with an area of ~217 sq. km. and is strategically located within 30 minutes of driving distance of two major urban centres viz. Vijayawada and Guntur.
 
Standalone (Unsupported) Rating
­Acuite BB (Downgraded from ACUITE BBB) / stable.
 
Analytical Approach
­Acuité has considered the standalone business and financial risk profiles of APCRDA and has factored in support extended by GoAP (through an unconditional and irrevocable guarantee) as well as the presence of the Structured Payment Mechanism including the availability of Debt Service Reserve Account (DSRA) while arriving at the rating.
 
 

Key Rating Drivers

Strengths
­Unconditional and irrevocable guarantee from GoAP along with a Structured Payment Mechanism
The interest and the principal payments on the NCDs are backed by an unconditional and irrevocable guarantee from the Government of Andhra Pradesh (GoAP). The structure mechanism entails maintenance of Debt Service Reserve Account (DSRA), and Bond Servicing Account (BSA), the salient aspects being: I. The DSRA shall be maintained in form of cash or fixed deposits equivalent to total debt servicing obligation of the outstanding bonds for the next 2 quarters II. BSA shall be funded at the start of each quarter, amount equivalent to 1.5 times the amount of debt servicing requirement (interest and principal), from its own revenue sources III. The debenture trustee will independently monitor the adequacy of collection (interest and principal) in BSA. In case of a shortfall on T-15th day, it shall intimate APCRDA. In case the shortfall is not met by T-7th day, the debenture trustee shall draw the funds from DSRA by that day. IV. In case there is a shortfall in DSRA due to drawal of funds to BSA, the shortfall in DSRA is to be met by APCRDA within 5 days of the utilisation of the funds V. If the DSRA is not replenished to the requisite extent within 135 days of the shortfall by issuer or by GoAP, then the Trustees shall invoke the GoAP Guarantee for the shortfall amount. The amounts lying to the credit of Designated Revenue shall be first utilised towards bond servicing amount equivalent to 1.5 times of debt servicing due for particular quarter, then towards debt servicing or transfer to any other account relevant to servicing of other debt. The adherence to the structured payment mechanism will remain a key rating sensitivity factor.
Weaknesses
­High linkages with the vulnerable fiscal profile of Andhra Pradesh
The positioning of Andhra Pradesh as an attractive major destination for various local and international investors will require significant investments in infrastructure development in Amaravati. High developmental expenditure is required for execution of these mega plans which has been funded largely through long term investments and borrowings from various domestic and international investors. Besides the participation of the private sector through Public-Private Partnership (PPP), the State Government is expected to support these development plans through various fiscal sops, equity contributions, soft loans and issuance of guarantees in favor of the lenders to these projects. Acuité believes APCRDA will have a significant dependence on grants from State and Central Government. Timely support from the State Government or any long term equity tie up for timely completion of the projects will remain a key monitorable. The rating factors in support from the State Government to APCRDA in a timely manner.

As per Andhra Pradesh State budget, the revenue receipts is estimated at Rs. 1,91,262 Cr. for FY2022-23 (Budget Estimates) as against Rs.1,55,234 Cr. for FY2021-22 (Revised Estimates). The revenue deficit is estimated at Rs. 17,036 Cr. for FY2022-23 (BE) which is 1.27% of the GSDP as against 1.63% of GSDP for FY2021-22 (RE). The gross fiscal deficit to gross state domestic product (GFD to GSDP) is estimated at 3.64 per cent in FY2022-23 (BE) as against 3.49 per cent in FY2021-22 (RE). The influence of adverse macro-economic factors such as cutbacks in capex plans by corporates and improved sops by other States may impinge on the investment flows into the State. Any further slippages in the key fiscal parameters could impact the credit profile of the State.  Andhra Pradesh’s ability to attain an improvement in its fiscal parameters also depends on its revenue generation which in turn is linked to its own revenues as well as devolution from Centre. Any further slowdown in investment flows and sluggishness in economic activity may affect its fiscal parameters. The ability to maintain fiscal discipline while facilitating higher GSDP growth after the disruptive impact of the prolonged Covid pandemic will be a key determinant of GoAP’s credit profile, going forward.
ESG Factors Relevant for Rating
­Not applicable
 
Rating Sensitivities
  • ­Credit Profile of GoAP
  • Adherence to the stipulated transaction structure
 
Material covenants

Affirmative Covenants

The issuer covenants with the Bond Trustee that until the Final Settlement Date of Bonds it shall;

  • Utilise proceeds of bonds received towards the purpose.
  • Take all steps necessary to get the Bonds listed within 20 (Twenty) calendar days from the Date of allotment. In case of a delay by the Issuer in listing the Bonds beyond 20 (Twenty) calendar days from the Date of allotment the Issuer shall make payment to the Bond Holders of additional interest calculated on the face value of the Bonds at the rate of at least 1% (One Percent) p.a. over and above the Interest Rate from the expiry of 30 (Thirty) calendar days from the Date of allotment until the listing of the Bonds.
  • APCRDA shall take all necessary steps to preserve its status as authority and shall comply with all relevant necessary guidelines.
  • No Misrepresentation.
  • Pay all costs, charges and expenses in any way incurred by the Bond Trustee towards protection of Bond-holders' interests.
  • Increased Costs.
  • Furnish all required information to trustee.
  • Further Assurances.
  • Ensure validity of transaction documents.
  • Ensure execution of further documents and and acts.
  • Comply with each of the Financial Terms and Conditions.
  • Ensure Records and Inspection.
  • Issuer to ensure that Bonds are rated by the Rating Agencies and continue to be rated during the tenure of the Bonds.
  • Perform all of its respective obligations under the terms of the Transaction Documents and maintain in full force and effect each of the Transaction Documents to which it is a party.
  • The Issuer agrees that it shall forward to the Bond Trustee promptly, whether a request for the same has been made or not:
    (i) a copy of the Statutory Auditors' and ' Annual Report of Issuer, Balance Sheet and Profit & Loss Account and of all periodical and special reports at the same time as they are issued; (ii) a copy of all notices, resolutions and circulars relating to new issue of debt securities at the same time as they are sent to shareholders/ holders of debt securities; (iii) a copy of all the notices, call letters, circulars, proceedings, etc. of the meetings of debt security holders at the same time as they are sent to the holders of debt securities or advertised in the media.
  • The Issuer shall, while submitting half yearly/ annual financial results to the stock exchange disclose the following line items along with the financial results accompanied by a certificate from the Bond Trustee confirming that it has taken note of the said content and the same shall be communicated to the Bond Holder(s) on a half-yearly basis:
    (i) Credit rating of the Issue and change in credit rating (if any); asset cover available, in case of non convertible debt securities
    (ii) Asset cover available 
  • (iii) Debt- Equity Ratio of the Issuer;
    (iv) Previous due date for the payment of Interest / principal and whether the same has been paid or not;
    (v) Next due date of payment along with the amount of interest/redemption amount payable;
    (vi) debt service coverage ratio; interest service coverage ratio; Net Worth; Net profit after tax;
  • Notify the Bond Trustee in writting no later than 5 working days of any information submission
  • The issuer shall provide periodical status / performance reports within 7 (Seven) calender days of the relevant board meeting or within 45 (Firty five) calender days of respective quarter whichever is earlier.
Negative Covenants
The Issuer hereby covenants with the Bond Trustee that until the Final Settlement Date, the Issuer shall not, except as may otherwise be previously agreed to in writing by the Bond Trustee (acting upon the receipt of the prior written approval of the Majority Bond Holder(s);

(a) Merger, Restructuring Etc.
(b) Engage in or undertake any restructuring, by way of merger, de-merger, acquisition, restructuring or amalgamation, consolidation.
Arrangement With Creditors/Shareholders
Enter into any transaction of merger, de-merger, consolidation, re-organization, scheme of arrangement or compromise with its creditors or shareholders or effect any scheme of amalgamation or reconstruction; provided however that this restriction shall not apply in the event that the compliance with this restriction would result in the Issuer defaulting in relation to any of its payment obligations in relation to the Bonds.
(c) Disposal Of Assets ; Sell, transfer, or otherwise dispose of assets/business/division in any manner whatsoever.
(d) Change Of Business
Undertake any new business or diversify or any change in the general nature and conduct of its business. Further main revenue account shall strictly comply water fall mechanism defined in accounts agreement
(e) take any action/ commit any omission and/ or allow any action to be taken/ any omission to be committed which would result in the termination of any of the Transaction Documents;
(f) undertake that authority shall not provide third party Guarantees in violation of any of the transaction documents
(g) wind up, liquidate or dissolve its affairs;
(h) enter into any compromise or arrangement or settlement with the creditors of the Issuer.

Assessment of Adequacy of CE Structure
The CE structure has been designed to ensure adequacy and timeliness in the receipt of funds required for debt service. The team has also undertaken a sensitivity analysis to factor in shortfall in revenue and special margin collections. An independent trustee will be appointed to monitor the structured payment mechanism.
 
Liquidity Position: Weak
­The liquidity of APCRDA is dependent on timely receipt of grants from GoAP and disbursements from lenders. Liquidity cushion has been intrinsically built into the transaction structure through DSRA and the BSA. However, the standalone liquidity position of APCRDA currently remains stretched due to a lack of timely infusion of funds from GoAP.  
 
Outlook: Stable
­Acuité believes that APCRDA will maintain a 'Stable' outlook over the medium term on the back of support from GoAP. The outlook may be revised to 'Positive' in case of an improvement in GoAP's fiscal position or in case APCRDA is able to generate cash surpluses. Conversely, the outlook may be revised to 'Negative' in case of any significant deterioration in the financial health of GoAP or any further deviation from the stipulated transaction structure.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 22 (Provisional) FY 21 (Actual)
Operating Income Rs. Cr. 39.35 31.38
PAT Rs. Cr. (203.95) (298.22)
PAT Margin (%) (518.29) (950.34)
Total Debt/Tangible Net Worth Times 1.23 1.47
PBDIT/Interest Times 0.10 0.00
Status of non-cooperation with previous CRA (if applicable)
­None
 
Any other information
­None

­Transaction Structure
Date Particulars
T-90 Advance crediting of the bond servicing account, of 1.5x the upcoming debt servicing obligation (Interest + Principal (whenever applicable))

T-15		 Trustee to monitor the adequacy of collection (interest and principal) in APCRDA bond servicing account on T-15th day and intimates the issuer/ GoAP in case of
any shortfall.
T-7 If the shortfall is not made good by T-7th day, the Debenture Trustee shall utilize funds from DSRA account to meet the shortfall.
T Debt Servicing date, when payments are made to the investors
T+5 In case there is a continued shortfall in DSRA account due to utilization of funds, issuer/GoAP undertakes to restore DSRA account within 5 working days.
T+10 In case Issuer fails to replenish the DSRA, trustees to inform the GoAP in writing regarding the shortfall in DSRA account so that necessary arrangements shall be
  made for replenishment of DSRA by the issuer or GoAP.
T+15 The DSRA to be replenished by APCRDA/GoAP

T+30		 If the DSRA is not replenished to the requisite extent by T+30th day, the Trustees shall
send soft notice to GoAP intimating that Guarantee shall be invoked, if Government fails to replenish the DSRA

T+75		 The debenture trustee should independently monitor the adequacy of collection (interest and principal) in APCRDA Bond Servicing account on T2-15 (i.e. 15 days prior to next debt servicing date) day and intimate the issuer in case of any
shortfall.
T+83 If the shortfall is not made good by T+83 day, the Debenture Trustee shall utilize funds from DSRA account to meet the shortfall.
T+90
  1. Debt Servicing
  2. Trustee shall send notice to GoAP to replenish full DSRA of two quarters within 30 days
T+120 Invocation of GoAP guarantee by trustee for redemption of outstanding principal and interest
T+130 Last date by which GoAP shall transfer requisite funds in the designated escrow account as per the notice of invocation served by the trustees.
 
Applicable Criteria
• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Service Sector: https://www.acuite.in/view-rating-criteria-50.htm
• Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm
• Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm
Note on complexity levels of the rated instrument
­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial
Instruments” on www.acuite.in.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
14 Jan 2022 Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Stable (Reaffirmed)
15 Jan 2021 Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) (Ratings Under Watch)
31 Jan 2020 Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Ratings Under Watch)
21 Nov 2019 Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Downgraded from ACUITE AA- (CE))
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Downgraded from ACUITE AA- (CE))
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Downgraded from ACUITE AA- (CE))
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Downgraded from ACUITE AA- (CE))
Non Convertible Debentures Long Term 400.00 ACUITE A+ (CE) | Negative (Downgraded from ACUITE AA- (CE))
19 Aug 2019 Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) (Ratings Under Watch)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) (Ratings Under Watch)
26 Jun 2019 Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) | Stable (Reaffirmed)
Non Convertible Debentures Long Term 400.00 ACUITE AA- (CE) | Stable (Reaffirmed)
29 Jun 2018 Proposed Bond Long Term 2000.00 ACUITE AA- (CE) | Stable (Reaffirmed)
31 May 2018 Proposed Bond Long Term 2000.00 ACUITE AA- (CE) | Stable (Assigned)

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating
Not Applicable INE01E708016 Non-Convertible Debentures (NCD) 16 Aug 2018 10.32 16 Aug 2024 400.00 Simple ACUITE BBB+ | CE | Stable | Downgraded
Not Applicable INE01E708024 Non-Convertible Debentures (NCD) 16 Aug 2018 10.32 16 Aug 2025 400.00 Simple ACUITE BBB+ | CE | Stable | Downgraded
Not Applicable INE01E708032 Non-Convertible Debentures (NCD) 16 Aug 2018 10.32 16 Aug 2026 400.00 Simple ACUITE BBB+ | CE | Stable | Downgraded
Not Applicable INE01E708040 Non-Convertible Debentures (NCD) 16 Aug 2018 10.32 16 Aug 2027 400.00 Simple ACUITE BBB+ | CE | Stable | Downgraded
Not Applicable INE01E708057 Non-Convertible Debentures (NCD) 16 Aug 2018 10.32 16 Aug 2028 400.00 Simple ACUITE BBB+ | CE | Stable | Downgraded

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