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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 2000.00 | ACUITE C | Downgraded | - |
| Total Outstanding | 2000.00 | - | - |
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Rating Rationale |
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Acuité has downgraded its long term rating to ACUITE C (read as ACUITE C) from ACUITE BBB+ (CE) (read as ACUITE triple B plus (Credit Enhancement)) on the Rs.2000.00 Cr. Non-Convertible Debentures of Andhra Pradesh Capital Region Development Authority (APCRDA).
Rationale for downgrade The downgrade reflects APCRDA’s delays in timely servicing of its bank debt obligations during the month of October 2023 owing to its poor liquidity position. As per the intimation received by the entity, the interest payment to the tune of Rs. 14.36 Cr. towards the consortium loan that was due on October 31, 2023 was only paid on November 20, 2023. The bank debt was guaranteed by the state government.
Acuité has noted that the bond servicing account was not funded adequately as per the terms before the debt obligation to the tune of ~Rs.152 Cr which was due on 16 November 2023 and the trustee had to utilise the funds from the DSRA in order to meet the shortfall towards debt obligation. However, the DSRA has not yet been replenished until November 30, 2023. as per the feedback received from the Trustee, which has resulted into the non-adherence of the structured payment mechanism. The current available balance in the DSRA is around Rs.88 Cr. while the entity still needs to arrange for shortfall of ~Rs. 430. Cr. in order to ensure timely repayment of next obligation which falls due on February 16, 2024. The same is expected to be met through additional budget allocation from GoAP of Rs. 570 Cr. Approval for the supplementary budget has been received on November 3, 2023, however, transfer to BSA, DSRA and other escrow accounts of APCRDA is pending for approval from GoAP on the bills submitted by APCRDA. However, Acuité believes timely replenishment of DSRA and BSA will remain critical towards the rating. |
| About the Authority |
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The erstwhile state of Andhra Pradesh was bifurcated into 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 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.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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To arrive at the rating, Acuité has considered the standalone business and financial risk profiles of APCRDA. While a Credit Enhancement (CE) was applied earlier based on a structured payment mechanism and a GoR guarantee, the same has been removed.
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| Key Rating Drivers |
| Strengths |
| 100% Government of Andhra Pradesh (GoAP) holding
Andhra Pradesh based, 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. It was formed with the purpose of construction of new Capital city of Andhra Pradesh, ‘Amaravati’ Planning, Co-ordination, Execution, Supervision, Financing, Funding and for Promoting and Securing the Planned Development. The key managerial personnel are Mr. YS Jagan Mohan Reddy, Mr. P. Narayana, Mr. Yanamala Ramakrishnudu, Mr. Dinesh Kumar, Mr. Muddada Ravichandra, Mr. Ajay Jain, Mr. Anil Chandra Punitha, Mr. G. Anantha Ramu, Mr. K. S. Jawahar Reddy, Mr. Sreedhar Cherukuri, Mr.Keshav Verma. Mr. V. K Phatak, Mr. Christopher Charles Benninger and Mr. S.L Dhingra. |
| 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. 2,60,868 Cr. for FY2023-24 (Budget Estimates) as against Rs.1,76,502 Cr. for FY2022-23 (Revised Estimates). The revenue deficit is estimated at Rs. 22,317 Cr. for FY2023-24 (BE) which is 1.5% of the GSDP as against 2.2% of GSDP for FY2022-23 (RE). The gross fiscal deficit to gross state domestic product (GFD to GSDP) is estimated at 3.8 per cent in FY2023-24 (BE) as against 3.6 per cent in FY2022-23 (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 will be a key determinant of GoAP’s credit profile, going forward. |
| ESG Factors Relevant for Rating |
| Not Applicable |
| Rating Sensitivities |
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| All Covenants |
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Affirmative Covenants
The issuer covenants with the Bond Trustee that until the Final Settlement Date of Bonds it shall;
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 complywater 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. |
| Liquidity Position |
| Poor |
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Debt obligations for bonds non-adherence to the stipulated transaction structure has been observed. As per the T structure, GoAP has to ensure that the bond servicing account has 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. The interest was due on 16th November 2023, and payment had been made through DSRA invocation for meeting the same. This has resulted in a shortfall in the DSRA which is to be maintained at a level equivalent to next 2 quarters of debt servicing obligation. Further, DSRA has not been replenished yet, as per the feedback of the trustee.
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| Outlook: Not Applicable |
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| Other Factors affecting Rating |
| Not Applicable. |
| Particulars | Unit | FY 23 (Provisional) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 62.56 | 165.39 |
| PAT | Rs. Cr. | (208.01) | (226.07) |
| PAT Margin | (%) | (332.50) | (136.69) |
| Total Debt/Tangible Net Worth | Times | 0.51 | 1.20 |
| PBDIT/Interest | Times | 0.13 | 0.02 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable. |
| Any other information | ||||||||||||||||||||||||||||||
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Transaction Structure
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| Applicable Criteria |
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• 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 |
| Note on complexity levels of the rated instrument |
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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.
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