Benefits from Bhopal’s status as an Administrative Capital of Madhya Pradesh
BMC provides civic services to Bhopal city, the capital of Madhya Pradesh. Being an administrative capital, Bhopal is a base for all major state government offices. As a hub for major decision making, Bhopal has enhanced the ability to attract investments from a wide range of sectors. The city has around 1044 major small and medium scaled industries and also large-scale companies such as BHEL, DB Corp, among others. The city is divided into two parts, old city, and new city. Old city has major industries such as electrical goods, chemical, cotton, sporting equipment, among others. Mandideep, which is another industrial hub of Bhopal, has attracted major companies such as HEG Limited and Lupin Laboratories Limited. The significant employment opportunities, generated as a result of the economic activities in and around Bhopal, has led to higher per capita income that augurs well with the cash flows of BMC. The per capita income stood at Rs. 61,524 for FY2021-22 (at 2011-12 constant prices) which for the year 2022-23 is likely to be 65,023. Besides being the capital city of Madhya Pradesh, Bhopal has been identified as one of the cities under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) mission. The purpose of AMRUT is to ensure every household has access to tap water and sewerage connection, increase the amenity value of cities, and reduce pollution in the city.
Acuité believes that adequate financial and non-financial support from State and Central Government will be made available to BMC for maintaining civic infrastructure at healthy levels under AMRUT mission. The total revenues of BMC stood at Rs. 1106 Cr. for FY2023(Prov.) against Rs.1075 Cr. for FY2022 and Rs. 970 Cr. in FY2021.
BMC has access to revenue grants and capital Grants from State Government and Central Government.The entity’s surplus stood at Rs. 214.12 Cr. in FY2023 (Prov.) against Rs.207.22 Cr. for FY2022 and Rs. 198.06 crore in the previous year.
Structured Payment Mechanism
- BMC has access to Revenue Grants and Capital Grants from the State Government and Central Government. Apart from above, Property tax, water tax, other owned revenues, fees and user charges collected by and due to BMC shall be deposited every month in a separate no-lien Escrow account for debt servicing of the bonds.
- The funds should be first utilized to meet the Minimum Balance in Escrow Account which entails maintenance of an Debt Service Reserve Account (DSRA), Sinking fund Account (SFA), Interest Payment Account (IPA), and Debenture Redemption Reserve (DRR). Bondholders will have their first charge over the Escrow Account.
- The minimum balance shall not be used for any purpose other than transfer to the DSRA, IPA and SFA. The surplus funds after meeting the Minimum balance can be transferred to BMC General Fund Account.
- In case of any shortfall from transfer from Escrow account to DSRA IPA and SFA, BMC shall make good the shortfall from the funds from other accounts to IPA SFA or DSRA.
Terms of the NCDs
- The DSRA shall be created upfront one day prior to the pay-in date with an amount equivalent to one-year’s interest payments (i.e equal to two interest payments – as interest payment is semi-annual) for the bond structure by BMC from its own resources.
- The funds (Owned Revenue) received in the Escrow Account will be transferred to IPA and SFA on a monthly basis as per the terms of the bond.
- As regards the interest payments (expected to be half yearly), the IPA will be funded on a monthly basis.
- SFA, which shall be funded monthly equivalent to the amount as per the terms of bond issuances.
IPA
An amount, as specified in the terms of bonds/loans agreements, will be transferred to IPA from Escrow Account on a monthly basis. The debenture trustee shall check the amount in IPA at least 25 (T-25) days prior to the interest payment date. In case of any shortfall in the amount the trustee shall intimate the BMC of the shortfall and BMC shall cover the shortfall prior to 15 days(T-15 days) of the interest payment day. If the corporation fails to cover the shortfall at 14 days (T-14 days) prior to interest servicing day, then the trustee will instruct the bank to transfer the deficit from DSRA to IPA at 10 days (T-10 days) prior to the interest servicing day. Any amount drawn from the DSRA should be deposited back in the DSRA by the end of the month, following the month in which the amount from DSRA has been withdrawn.
SFA
The debenture trustee shall check the balance in SFA at the end of each year; in case of any shortfall, the trustee shall inform BMC to replenish the same. Further, the trustee shall check the balance in SFA in T-25 days from the principal redemption date. In case of any shortfall, the trustee shall ask BMC to make good the shortfall by T-15 days.
Management of Funds
The management of funds in the various designated accounts will be overseen by the trustee. Any surplus funds available in the Escrow account, after meeting the aforesaid structured payment mechanism, can be transferred to BMC’s general fund account. Escrow Account, DSRA, IPA and SFA shall be maintained with a scheduled commercial bank, rated at least ‘AA+’ by two rating agencies, throughout the tenure of the instruments. If the rating of senior debt of the concerned bank falls below ‘AA+’, BMC will move the fund to other bank, satisfying the aforesaid conditions. The status of the designated accounts will be shared with the debenture trustee and rating agencies on a periodic basis during the tenor of the bonds. The funds credited and lying in IPA, SFA and DSRA can be kept in fixed deposits with a scheduled commercial bank with a dual rating of ‘AA+’ or above. The interest income earned on the investments made from SFA, DSRA and IPA can be utilised towards obligations of the respective accounts.
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| Significant buildup of receivables.
The debtors position as on 31 March, 2023 (Prov.) although improved marginally, stood at Rs. 930 Cr. ie 384 days against Rs.950 Cr. as as on 31 March, 2022 i.e. 421 days for FY22 (previous year 433 days). Acuité believes that any significant build-up in receivables beyond existing levels will be a key rating sensitivity factor.
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