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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 3000.00 | ACUITE AA- | Stable | Reaffirmed | - |
| BOND | 200.00 | Provisional | ACUITE AA+ | Stable | Assigned | - |
| Total Outstanding | 3200.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuite has reaffirmed the long term rating of ''ACUITE AA-'' (read as ACUITE double A minus) on the Rs.3000.00 Cr. bank facilities of Greater Chennai Corporation (GCC). The Outlook is 'Stable'.
Acuite has assigned its long term rating of ' PROVISIONAL ACUITE AA+' (read as PROVISIONAL ACUITE double A plus) on the Rs.200 Crore of proposed bond of Greater Chennai Corporation. The outlook is 'Stable'. The rating on the Rs.200.00 Cr. proposed Bond is provisional and the final rating is subject to receipt of pending documentation:
Rationale for Rating
The rating takes into consideration the consistent support from both the state and central government towards the development of the city, strong operating performance, a YoY increase in tax revenue and collection efficiency and a healthy cash surplus. Tamil Nadu continues to solidify its position as a manufacturing hub, with Chennai's economic base majorly supported by automobiles, telecommunications, software services. The corporation also has good infrastructure in place, a strong record in terms of geographic coverage and service delivery and has been performing well in the execution of its civic duties. However, the rating to be constrained by the elevated level of receivables of GCC. Note: Acuite have considered all the four funds for analysis i.e. Municipal fund, Capital fund, Elementary Education fund and Earmarked fund. |
| About the Company |
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Chennai based Greater Chennai Corporation (GCC) is the Oldest Municipal Institution in India established on the 29th September 1688. The corporation maintains roads, streetlights, flyovers, and also the city's cleanliness and hygiene levels. The Parliamentary Act of 1792 gave the Corporation power to levy Municipal Taxes in the City. The Municipal administration properly commenced from the Parliamentary Act, 1792 making provision for the good order and administration of the city. The Municipal Act has been amended introducing from time to time major changes in the constitution and powers of the Corporation. The Chennai City Municipal Corporation Act, 1919 (as amended) provides the basic statutory authority for the administration now. The municipal Corporation is managed by the Commissioner J. Kumaragurubaran, I.A.S, and other Additional and Deputy Commissioners include Dr. V. Jaya Chandra Bhanu Reddy I.A.S , Dr. J. Vijayarani I.A.S, V Siva Krishnamurthy I.A.S, and M Birathiviraj I.A.S . Chennai is named as ‘Detroit of Asia’ due to the presence of major automobile manufacturing units and allied industries around the city.
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| Unsupported Rating |
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ACUITE AA-/Stable.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of Greater Chennai Corporation (GCC) to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
| Benefits from Chennai’s status as an administrative and political capital of Tamil Nadu
Greater Chennai Corporation (GCC) provides civic services to Chennai city, the capital of Tamil Nadu. Being an administrative capital, Chennai is a base for all major state government offices. As a hub for major decision making, Chennai has enhanced the ability to attract investments from a wide range of sectors. Chennai city is located in the northeastern part of Tamil Nadu, and is the hub of various small, medium and largescale industries like automobiles, soft ware services, medical, toursim, hardware manufacturing and financial services sectors which are major contributors to the economy of Tamil Nadu. Other important industries include petrochemicals, textiles, apparel and soon to become the EV (Electric Vehicle) hub of the country. A few largescale companies located in and around Chennai include Ashok Leyland Limited, Chennai Petroleum Corporation Limited, MRF Limited, Redington India Limited, The India Cements Limited, Murugappa Group, Ford Motor Company, etc. Further, Chennai is the third largest software exporter in India and a resident for IT companies, including Infosys, Wipro, Tata Consultancy Services, to name a few. Acuité believes the significant employment opportunities generated by the varied range of industries located in and around Chennai are expected to lead to higher per capita income which augurs well for GCC. Chennai is also one of the cities under Atal Mission for Rejuvenation and Urban Transformation (AMRUT). The purpose of AMRUTis to ensure every household to have access to tap water and sewerage connection, increase the amenity value of cities, and reduce pollution in the city. Acuité believes that GCC will continue to benefit significantly from its pivotal position as the capital city of the second largest economy in the country. Since the ongoing support from the state government will be critical for maintaining a stable credit profile, the credit rating of GoTN will also be a key monitorable. Strong operating performance,reflected in a healthy operating surplus The revenue profile of the GCC includes various tax revenues, rental income from municipal corporations, sales and hire charges, grants and subsidies of revenue nature and non-tax income. GCC owned revenues stood at Rs.4436.35 Cr. in FY2024 as against Rs.4206.97 Cr. in FY2023 and Rs.3210.93 Cr. in FY2022. The improvement in the income is due to an increase in the tax revenue over the last two years ended FY2024. Acuite believes that the revenue of the corporation will further improve over the medium term and the operating surplus is expected to sustain over the medium term owing to healthy revenue collection and improvements in economic activities. Healthy financial risk profile The financial risk profile of the GCC is healthy marked by strong net worth, low gearing, and healthy debt protection metrics. The net worth of GCC stood at Rs.13240.49 Cr. as on March 31, 2024, increased from Rs.10894.30 Cr. as on March 31, 2023, as against Rs.8273.27 Cr. as on March 31, 2022. The net worth also includes grants and contributions for specific purposes from central and state government. The reflected debt of Rs.1788.77 Cr. as on March 31, 2024 are loans from the state government, government bodies and banks. The gearing level of GCC stood low at 0.14 times as on March 31, 2024 as against 0.23 times as on March 31, FY2023. The debt protection metrics are healthy with the interest coverage ratio (ICR) of the corporation stood at 10.42 times in FY2024 against 7.87 percent in FY2023. Further, total outside liabilities to total net worth stood steady, healthy, and same at 0.39 times as on March 31, 2024 as against 0.50 times as on March 31, 2023. Acuite believes that the GCC financial risk profile continues to be healthy backed by adequate support from GOI and GOTN in the form of grants, timely receipt of tax collection and continues growth potential of Chennai city. Creation of Term Deposits with name of Project Sustanability Grant Fund Project Sustainability Grant Fund (PSGF), a Grant Fund of Government of Tamil Nadu and managed by Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL) shall create a term deposit in the name of PSGF equivalent to Rs.14.04 crore with the Trustee Banker / Escrow Banker of the municipal bond issue of the Corporation as Credit Enhancement Facility under World Bank assisted Tamil Nadu Resilient Urban Development Program (TNCRUDP) for the issuance of municipal bond (“PSGF Amount”). The Debenture Trustee (on behalf of bond holders) shall have First & Exclusive charge over the Project Sustainability Grant Fund (PSGF Amount) term deposit created for this bond issue. The said term deposit shall be created in the name of “Project Sustainability Grant Fund” by PSGF once the date of the issue of bond is finalized but, in any case, no later than one day before the pay-in/allotment of bonds. The said term deposit shall be kept as cash collateral in the form of security for bondholders for servicing of the bonds during the entire tenor of the bonds & lien marked with the Bond / Debenture Trustee. The Escrow Banker (on the instructions of the Bond / Debenture Trustee) will utilize the PSGF Amount (i) In the case of insufficient funds in the Escrow Account /Interest Payment Account / Sinking Fund Account as per timelines mentioned under “Structured Payment Mechanism” provided as above and (ii) In case of occurrence of payment default or event of default, the PSGF Amount shall be utilized for meeting all the outstanding interest and principal obligations to the bond holders. Structured Payment Mechanism GCC has access to variousincome sources out of which Property tax from Zone 5 and Zone 7 shall be deposited every month in aseparate no-lien Escrowaccount for debt servicing of the bonds. The funds should be first utilized to meet the Minimum Balance in EscrowAccount which entails maintenance of a Debt Service Reserve Account (DSRA), Sinking fund Account(SFA) and Interest Payment Account (IPA) The minimum balance shall not be used for any purpose other than transfer to the DSRA, IPAand SFA. Terms and Conditions The DSRA shall be created in an any event prior to seven days with an amount equivalent to the two coupon payments (1 years’interest) need to be maintained. 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 (Interest Payment Account) An amount, as specified in the terms of bonds/loans agreements, will be transferred to IPA from EscrowAccount 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 GCC of the shortfall and GCC 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, the Debenture Trustee shall trigger the payment mechanism and shall instruct the Bank to utilise the PSGF Amount to the extent of the shortfall in the amount required to make payment of the Coupon on the Coupon Payment Date on or prior to the date falling 10 (ten) days prior to the Interest Payment Date (T-10 days). Further, immediately after the PSGF Amount utilization, the amounts lying or credited in the escrow account shall flow for the PSGF Amount replenishment and shall not be transferred by the Issuer to the general fund account(s) till the time the required PSGF Amount is replenished. In case of shortfall in the amount required to make payment of Coupon on the Coupon Payment Date in the Interest Payment Account the Debenture Trustee shall trigger the payment mechanism and shall instruct the Bank to utilise the DSRA Amount to the extent of the shortfall in the amount required to make payment of the Coupon on the Coupon Payment Date on or prior to the date falling 8 (Eight) days prior to the Interest Payment Date (T-8 days). The Coupon shall be paid by the Issuer on the Coupon Payment Date (T). In case the DSRAAmount (or part thereof) is utilized to fund the shortfall in the amount required to make payment of the Coupon in respect of any Coupon Payment Date, immediately after the Debenture Trustee has instructed the Bank to utilise the DSRA Amount as above and in any event prior to 7 (Seven) days prior to the relevant Coupon Payment Date (T-7), the Debenture Trustee would issue afinal notice in writing to the Issuer. On the issuance of such notice, the Issuer shall make good the DSRA Amount Shortfall within next 15 (Fifteen) days (T+8). Further, immediately after the DSRA utilization, the amounts lying or credited in the escrowa ccount shall flowinto the interest payment account for DSRA replenishment and shall not be transferred by the Issuer to the general fund account(s) till the time the required DSRAamount is replenished. SFA(Sinking Fund Account) The Debenture Trustee shall check the amount lying to the credit of Sinking Fund Account at 45 (Forty-Five) days prior to the end of each 12-month block. In case of any Sinking Fund mismatch, the Debenture Trustee shall intimate Issuer of the shortfall and Issuer shall make good the Sinking Fund mismatch 15 (Fifteen) days prior to the end of each 12-month block (T-15 days). Further, in case of shortfall on T-45 days, the amounts lying or credited in the escrow account shall flow into the sinking fund account for funding the shortfall and shall not be transferred by the Issuer to the general fund account(s) till the time the shortfall is funded.In case of shortfall still persists in in the Sinking FundAccount at 14 (Fourteen) days prior to the end of each 12 month block (T-14 days), the Debenture Trustee shall trigger the payment mechanism and shall instruct the Escrow Bank to utilise the PSGF Amount to the extent of the shortfall in the Sinking FundAccount on or prior to the date falling 10 (ten) days prior to the end of each 12 Month Block (T-10 days). Further, immediately after the PSGF Amount utilization, the amounts lying or credited in the escrow account shall flow for the PSGF Amount replenishment and shall not be transferred by the Issuer to the general fund account(s) till the time the required PSGF Amount is replenished.In case of shortfall still persists in in the Sinking Fund Account at 9 (Nine) days prior to the end of each 12-month block (T-9 days), the Debenture Trustee shall issue a final notice to the issuer. On the issuance of such notice, the issuer shall remit the funds to fund the shortfall into the Sinking Fund Account prior to the end of each 12 Month Block (T). |
| Weaknesses |
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Weaknesses Significant buildup in receivables The receivables of the corporation have remained high resulting in a significant build-up of receivables as on March 31 2024. The debtor’s position stood at Rs.4616.01 Cr. i.e. 464 days as on March 31,2024 as against Rs.3907.56 Cr. i.e 385 days as on March 31, 2023. Trade receivables include property tax, professional tax, company tax. Acuité believes that any significant build-up in receivables beyond existing levels will be a key rating sensitivity factor. |
| Assessment of Adequacy of Credit Enhancement under various scenarios including stress scenarios (applicable for ratings factoring specified support considerations with or without the “CE” suffix) |
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Project Sustainability Grant Fund (PSGF)
A Grant Fund of Government of Tamil Nadu and managed by Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL) shall create aterm deposit in the name of PSGF equivalent to Rs.14.04 crore with the Trustee Banker / Escrow Banker of the municipal bond issue of the Corporation as Credit Enhancement Facility under World Bank assisted Tamil Nadu Resilient Urban Development Program (TNCRUDP) for the issuance of municipal bond (“PSGF Amount”). The said term deposit shall be kept as cash collateral in the form of security for bondholders for servicing of the bonds during the entire tenor of the bonds & lien marked with the Bond / Debenture Trustee. The Escrow Banker (on the instructions of the Bond / Debenture Trustee) will utilize the PSGF Amount (i) In the case of insufficient funds in the Escrow Account /Interest Payment Account / Sinking Fund Account as per timelines mentioned under “Structured Payment Mechanism” provided as above and (ii) In case of occurrence of payment default or event of default, the PSGF Amount shall be utilized for meeting all the outstanding interest and principal obligations to the bond holders. Stress Case Scenario Acuite Sensitized that the property tax which is expected to be collected out of Zone 5 and Zone 7 would be transferred to escrow account, even if adjusted by 50%, the Corporation would be able to meet its debt obligations. Over and above this, the Corporation is expected to maintain DSRA along with PSGF account which is to be replenished in a time bound manner in case of meeting any exigency and shortfall. |
| Rating Sensitivities |
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| All Covenants |
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Reference to Financial Covenants given below:
1. The Issuer shall, at all times till the Debentures are outstanding, ensure that the total amounts collected in the Escrow Account in any financial year shall be at least 2 (Two) times of the Annual Payments Amount. For the purpose of this term sheet, the term ‘Annual Payments’shall, in respect of any financial year, mean the aggregate of: a) the Coupon payable in such year (in relation to the present bond issue and any further borrowings); b) the portion of principal amount of the Debentures which are required to be deposited by the Issuer into the Sinking Fund Account in such financial year (in relation to the present bond issue and any further borrowings);and c) Principal Repayment amount (in relation to the further borrowings where sinking fund us not created), in terms hereof. So long as the Eligibility Conditions are met, the Issuer shall be entitled to raise further financial indebtedness based on its cash flows including the cash flows through the Escrow Account, provided that it is clarified that nothing in this provision should be construed to permit the creation of any encumbrance over the hypothecated property without the express prior written consent of the debenture trustee. For the purpose of this term sheet, the term ‘Eligibility Conditions’ shall mean the following conditions: a) the Annual Payments Ratio is maintained by the Issuer; b) there is no shortfall in the contribution to the EscrowAccount, the Interest Payment Account (including towards maintenance of the Required DSRA Amount), the Sinking Fund Account which has not been made good by the Issuer in terms of the Transaction Documents; c)no Event of Default has occurred. 2. Other financial covenants as defined in the Transaction Document. The documents executed in relation to, or which are relevant to the Issue including : 1. Placement Memorandum along with all annexures 2. Debenture Trustee Agreement 3. EscrowAgreement 4. Debenture Trust Deed 5. Tripartite Agreements with NSDL and CDSL 6. Issue Proceeds Agreement also, any other agreement or document designated as such by the Debenture Trustee (acting on the instructions of the Majority Debenture Holders). |
| Liquidity Position |
| Strong |
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GCC has strong liquidity marked by healthy net cash accruals of Rs.1036.17 Cr. in FY2024. The liquidity remains supported by the cash and bank balances of GCC stood at Rs.849.79 Cr. as on March 31, 2024 and investments in the form of fixed deposits stood at Rs.1284.01 Cr. as on March 31, 2024. However, Acuité believes that these funds would be significantly utilized for infrastructural development in near to medium term.
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| Outlook - Stable |
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| Other Factors affecting Rating |
| None. |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 4436.35 | 4206.97 |
| PAT | Rs. Cr. | (125.33) | (95.12) |
| PAT Margin | (%) | (2.82) | (2.26) |
| Total Debt/Tangible Net Worth | Times | 0.14 | 0.23 |
| PBDIT/Interest | Times | 10.42 | 7.87 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable. |
| Interaction with Audit Committee anytime in the last 12 months (applicable for rated-listed / proposed to be listed debt securities being reviewed by Acuite) |
| Not applicable |
| Any other information |
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Supplementary disclosures for Provisional Ratings Risks associated with the provisional nature of the credit rating
In case there are material changes in the terms of the transaction after the initial assignment of the provisional rating and post the completion of the issuance (corresponding to the part that has been issued) Acuité will withdrawthe existing provisional rating and concurrently assign afresh final rating in the same press release, basis the revised terms of the transaction. Rating that would have been assigned in absence of the pending steps/documentation The structure would have become null and void for the instrument. The rating of the instrument would have been equated to the Unsupported rating of the issuer (ACUITE AA). Timeline for conversion to Final Rating for a debt instrument proposed to be issued The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the proposed debt instrument. Under no circumstance shall the provisional rating continue upon the expiry of 180 days from the date of issuance of the proposed debt instrument. |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.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 • Public Finance - Urban Local Bodies: https://www.acuite.in/view-rating-criteria-57.htm |
| Note on complexity levels of the rated instrument |
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||
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