Press Release

Press Release

March 18, 2025

TIRUPPUR CITY MUNICIPAL CORPORATION
Rating Assigned

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
BOND	100.00	Provisional \| ACUITE AA- \| Stable \| Assigned	-
Total Outstanding	100.00	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

Acuite has assigned the long term rating of 'Provisional ACUITE AA-' (read as Provisional ACUITE double A minus) on the Rs.100.00 Crore Bond of Tiruppur City Municipal Corporation. The Outlook is 'Stable'.
The rating on the Rs.100.00 Cr. proposed Bond is provisional and the final rating is subject to receipt of pending documentation:

Final NCD term sheet
Executed agreement with debenture trustee and trust deed
Any other document relevant to the issue.

Rationale for Rating
The assignment of rating takes into consideration the consistent support from the government towards the development of city, reflected by the stable revenue and grants received. Further, the city is also known as Knitwear capital of India and been considered as textile manufacturing hub. The impact of same has also been seen in the GDP contribution made by Tiruppur City. In addition, the timely receipts of grants and state government schemes for improving the urban infrastructure following by the improved standard of living, sewerage network etc. The rating further draws comforts from the structured payment mechanism will be backed by an interest payment account (IPA) and a sinking fund account (SFA). The IPA shall be funded with the required amount in a debt service reserve account (DSRA)-equivalent to three half year interest instalments, prior to the pay in date, to be maintained during the tenor of the bonds. Acuite expects that TCMC would be able to receive adequate property tax collection to service the debt obligations. However, the rating to be constrained by the elevated level of receivables of TCMC and relatively moderate property tax collection.

About the Company

Tiruppur City Municipal Corporation is a civic body that governs Tiruppur, Tamil Nadu, India. It was established under The Tiruppur City Municipal Corporation Act, 2008. The corporation consists of 60 wards each represented by a councillor. Tiruppur City Municipal Corporation covers an area of 159.35 square km and had a population of 8.79 lakh as per the 2011 census. The municipal corporation provides essential services like water supply, sewerage, Street lighting, waste management, residential colonies roads, drains, markets, maternity services. Large number of hospitals with best facilities and latest equipments are located in the city. The municipal corporation is led by Corporation commissioner Mr. Thiru. S. Ramamoorthy, and Deputy commissioners Mr. M. Sundararajan, Mr. A. Sulthana. Mr. Thiru. N. Dineshkumar (Mayor) and Mr. Thiru.R. Balasubramaniam (Deputy Mayor) are public representatives of the municipal corporation. Its registered office is at Mangalam Road, Tiruppur.

Unsupported Rating

ACUITE A-/Stable

Analytical Approach

Acuité has considered the standalone business and financial risk profiles of Tiruppur City Municipal Corporation to arrive at the rating.

Key Rating Drivers

Strengths

Textile and Manufacturing hub
Tiruppur City is known as the Knitwear capital of India due to its cotton knitwear export. TCMC in Tamilnadu is known for its efficient urban administration and rapid growth. One of its key strengths lies in its robust infrastructure, particularly in textile industry, which drives the city’s economy. The municipality has made notable progress in waste management, sanitation, and water supply systems, improving the quality of life for its residents. Additionally, Tiruppur has been successful in implementing various developmental projects, including road improvements and modernizing public transport, contributing to its increasing urbanization and industrial development. It focuses on sustainability and community welfare further strengthens its position as a progressive municipality.

Financial position of TCMC
TCMC reported revenue receipts of Rs.312.47 Crore during FY24 against Rs.282.32 Crore during FY23. The major segment of the revenue has been contributed by the property tax collection along with revenue grants and subsidies.

Structured Payment Mechanism
TCMC has access to various income sources out of which Property tax 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 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, IPA and SFA.
Terms of the NCDs
The DSRA shall be created in an any event prior to seven days with an amount equivalent to the three succeeding coupon payments (i.e., one year interest obligation required to be paid by the issuer in the respect of the debentures.
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 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 issuer of the shortfall and TCMC shall cover the shortfall prior to 10 days (T-10 days) of the interest payment day. If the corporation fails to cover the shortfall at 09 days (T-09 days) prior to interest servicing day. In case the DSRA Amount (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 8 (eight) days prior to the relevant Coupon Payment Date. In case the DSRA amount has been utilized to fund the shortfall in the amount required to make the payment of the coupon in respect of any coupon date, immediately after the Debenture trustee has instructed the bank to utilise the DSRA amount as above and in any event prior to 7 days prior to the relevant coupon date (T-7). The debenture trustee would issue a final notice in writing to the issuer. On the issuance of such notice, the issuer shall make good the DSRA amount shortfall within next 15 days (T+8). Further,, immediately after the DSRA Utilization, the amount lying in the escrow account shall flow into the IPA for DSRA replenishment and shall not be transferred by the issuer to the general fund account till the time the required DSRA amount is replenished.
Further, in the event of any utilization from the PSGF amount, the debenture trustee would issue a notice in writing to the issuer to replenish the same within a period of 90 days from the date of utilization.

SFA (Sinking Fund Account)

The debenture trustee shall check the amount in SFA at least 25 (T-25) days prior to end of each 12-month block. In case of any shortfall in the amount the trustee shall intimate the TCMC of the shortfall and TCMC shall cover the shortfall prior to 15 days (T-15 days) prior to end of each 12 months’ block. If the corporation fails to cover the shortfall at 14 days (T-14 days) prior to end of each 12 months’ block.

Weaknesses

Significant build-ups of receivables
The debtors position as on 31 March, 2024 stood at Rs. 82.62 Cr. i.e. 248 days against Rs.90.62 Cr. as on 31 March, 2023 i.e. 301 days for FY23. 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)

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.10.40 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 Scenario:
Acuite sensitized that the property tax which is expected to be collected, 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

Movement in collection efficiency.
Movement in civic coverage indicators

All Covenants

Financial Covenants given below:

The issuer shall, at all times till the debentures are outstanding in sure that the total amount collected in the escrow account in any financial year shall be at least 2 times of the annual payments account.
For the purpose of this term sheet the terms 'Annual payments' shall in respect of any financial year mean the aggregate of:

the coupon payable in such year in relation to the present bond issue and any other further borrowings and
the portion of the 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 in terms of hereof.

So long the eligibility conditions are met the issuer shall be entitled to raise further financial indebtedness based on its cash flow 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 income brands over the hypothecated property and mortgage 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:

the annual payment ratios are maintained by the issuer
there is no shortfall in the contribution to the escrow account, the interest payment account (including towards maintenance of the required DSRA amount) and/or the sinking fund which has not been made good by the issuer in terms of the transaction documents
no event of default has occurred.

Liquidity Position

Adequate

TCMC has adequate liquidity marked by healthy net cash accruals of Rs.100.74 crore for FY2024. Currently, TCMC does not have any repayment in near to medium term. TCMC’s cash and bank balances of TCMC stood at Rs.366.53 crore as on March 31, 2024.However, the city requires huge investments to improve the quality of its civic services. TCMC’s has cash buffers, which can be utilized to fund capex for the betterment of the city. Acuite expects the liquidity to be adequate considering the TCMC has not availed any external debt.

Outlook: Stable

Other Factors affecting Rating

None.

Key Financials

Particulars	Unit	FY 24 (Actual)	FY 23 (Actual)
Operating Income	Rs. Cr.	312.47	282.32
PAT	Rs. Cr.	(10.94)	(150.52)
PAT Margin	(%)	(3.50)	(53.32)
Total Debt/Tangible Net Worth	Times	0.08	0.10
PBDIT/Interest	Times	4.45	(3.70)

Status of non-cooperation with previous CRA (if applicable)

None.

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

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 withdraw the 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 A-).

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

• 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 - State Government Ratings: https://www.acuite.in/view-rating-criteria-26.htm
• Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm
• Urban Local Bodies: https://www.acuite.in/view-rating-criteria-57.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.

Rating History :

Not applicable.

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
Not Applicable	Not avl. / Not appl.	Proposed Bond	Not avl. / Not appl.	Not avl. / Not appl.	Not avl. / Not appl.	100.00	Simple	Provisional \| ACUITE AA- \| Stable \| Assigned

*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)

Sr. No.	Company name
1	Tiruppur City Municipal Corporation
2	Government of Tamil Naidu

Contacts

Mohit Jain
Senior Vice President - Rating Operations

Kartik Arora
Analyst - Rating Operations

Contact details exclusively for investors and lenders

Mob: +91 8591310146
Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

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