| Ahmedabad Municipal Corporation | ||||
| 'Provisional CRISIL AA+/Stable' assigned to Proposed Bond | ||||
| Rating Action | ||||
| ||||
| & A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ‘Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ‘Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments’ by SEBI | ||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned 'Provisional CRISIL AA+/Stable' rating to the Rs 200 crore proposed bond of Ahmedabad Municipal Corporation (AMC) and has reaffirmed its ‘CRISIL AA+/Stable’ rating on the existing Rs 200 crore bond programme of the corporation.
The ratings reflect the strong creditworthiness of AMC and the strength of the trustee-administered escrow account and payment mechanism, and adequate liquidity in the form of debt service reserve account (DSRA) amounting to 12 months of interest obligation. (Refer to the annexure for the payment mechanism for coupon and redemption.)
The ratings also factor in the corporation’s strong financial risk profile and operating efficiency, driven by consistently healthy revenue surplus, strong liquidity, robust economic base, sound project management ability and focus on reforms. These strengths are partially offset by heavy reliance on state government grants and large capital expenditure (capex). |
Analytical Approach For arriving at the ratings, CRISIL Ratings has applied its criteria on future flow securitisation. |
Key Rating Drivers & Detailed Description Strengths: Strength of the escrow mechanism The escrow and bond payment mechanism provides adequate strength to the bond issuance. The tax receipts and user charges escrowed at collection, trustee-managed escrow mechanism and payment structure with recourse to the originator ensure adequate safety for timely payment to investors. The creation of a DSRA equivalent to annual interest payment before pay-in and its maintenance throughout the tenure further strengthen the structure. The debt service coverage ratio (DSCR) is expected to be high through the tenure of the instrument.
Strong operating performance, reflected in healthy operating surplus. AMC’s revenue profile includes income from collection of property tax, water and conservancy tax, income from and other taxes, octroi compensation and other revenue grants, and non-tax income. Revenue surplus is healthy, backed by strong property tax collection and steady receipt of grants from the state government in lieu of octroi, and non-tax income comprising town development income.
Despite increasing revenue expenditure, strong growth in the tax and non-tax collections led to the operating surplus rising to Rs 983 crore in fiscal 2023 from Rs 940 crore in fiscal 2022. The operating surplus is expected to sustain in fiscal 2024, driven by healthy revenue collection and improvement in economic activity, and should remain healthy over the medium term. The ability to manage revenue expenditure will be a key monitorable.
Strong financial position supported by comfortable liquidity and debt protection metrics Operating surplus to net debt ratio was comfortable over 0.7 time for fiscal 2023. The corporation is expected to receive adequate support from the state government in the form of grants and octroi compensation. Receipt of reimbursements and capital grants from the state government, along with turnaround in non-tax receipts and subsequent increase in liquidity, will be key monitorables.
Improving service delivery The corporation has an adequate civic infrastructure and robust delivery systems. High infrastructure quality is reflected in strong water supply coverage, adequate road and improving sewerage networks, and robust solid waste management practices.
Healthy economic base Ahmedabad’s robust industrial base, favourable location, strategic importance in the state, and high per capita income have led to a strong economic base. Industries in Gujarat have flourished due to favourable state government policies, affordable cost of living, surplus labour and low transportation cost.
Strong administrative setup and project management abilities The project management capabilities of AMC are driven by its structured administrative setup and robust execution skills, as reflected in favourable track record in completing complex projects such as the Sabarmati River Front Development (SRFD) and Bus Rapid Transit System (BRTS). There is a dedicated team to monitor projects implemented under the Jawaharlal Nehru National Urban Renewal Mission. AMC has also completed most of the projects under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) 1.0 and has moved on to planning projects under AMRUT 2.0.
Focus on implementing reforms AMC has been a pioneer in key reforms such as the implementation of unit area-based property tax calculation in fiscal 2002 and a fully working e-governance system. The corporation has also completed implementation of the double entry accounting system. Significant policy changes are being made to improve solid wate management. Despite steady progress in implementation of various e-governance reforms, AMC is yet to implement some key reforms such as geographical information system and linking it to property tax computation and collection. Metering of water connections is another area where limited progress has been made.
Weaknesses: High dependence on state government grants Although the share of grants and compensation from the state government has reduced over the years, it continues to account for a major portion (~47%) of total revenue receipts. Since the abolition of octroi in fiscal 2008, AMC has been receiving compensation consistently from the state government. During fiscal 2023, AMC received Rs 1,207 crore as octroi compensation. With rise in property tax rates and non-tax revenue, dependence on government grants is likely to reduce over the medium term.
Significant capex requirement There is large capex requirement, over the medium term, for implementing the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart City schemes, in addition to the ongoing SRFD and BRTS projects, will require estimated capex of over Rs 2,500 crore per annum over the medium term. During fiscal 2019, the corporation raised Rs 200 crore through taxable bonds for funding a part of the project under AMRUT. In fiscal 2023, AMC raised Rs 700 crore for SRFD and other projects. The corporation is also contemplating monetisation of some of the huge land parcels in its jurisdiction to partly fund capex. Any significant increase in capex, leading to substantial incremental debt, will remain a key rating sensitivity factor. |
Liquidity: Strong Operating surplus was healthy, over Rs 570 crore annually, over the past five fiscals, while overall liquidity was over Rs 1,100 crore as on March 31, 2023. AMC is likely to maintain unencumbered cash and bank balance of more than Rs 200 crore over the medium term and continue to generate a healthy operating surplus, which will be sufficient to meet debt obligation and partly fund capex. |
Outlook: Stable CRISIL Ratings believes AMC will continue to generate high operating surplus over the medium term, while maintaining comfortable debt protection metrics. |
Rating Sensitivity Factors Upward Factors
Downward Factors
Additional disclosures for the provisional rating (for the new bond issuance) The 'provisional' rating will be converted into a 'final' rating on receipt of the following documents duly executed:
Additional documents, if any, executed for the transaction will also have to be provided. A rating rationale or report indicating conversion of the 'provisional' rating into the 'final' rating will be published on the CRISIL website on receipt of the required documents.
The provisional rating shall be converted into a final rating after receipt of the transaction documents duly executed within 90 days from the date of issuance of the instrument.
The final rating assigned following the conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days, in line with its policy on provisional ratings.
Rating that would have been assigned in the absence of the pending documentation. In the absence of the pending documentation considered while assigning the provisional rating as mentioned earlier, CRISIL Ratings would have assigned a rating of ‘CRISIL AA/Stable’.
Risks associated with the provisional rating: The 'Provisional' prefix indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio |
About the corporation AMC is the largest municipal corporation in Gujarat and is governed by the Bombay Provincial Municipal Corporation Act, 1949, as amended by the Government of Gujarat. It has jurisdiction over 464.16 square kilometres and provides a range of civic services to around 70 lakh residents. Majority of these include water supply, sewerage disposal, solid waste management, primary education, public safety, transportation and slum improvement. |
Key Financial Indicators (CRISIL Ratings-adjusted figures)
|
Any other information: For existing bonds: Broad contours of the escrow structure are as follows: a) Escrow of property tax and user charges collected by and due to AMC eligible bondholders and lenders shall have first and pari-passu charge over the escrow account, debt service account (DSA) and the collection account(s). b) Establishing separate DSRA, interest payment account (IPA) and sinking fund accounts (SFA) with the escrow banker as per the terms of each series. Bondholders/lenders of particular series have first and pari-passu charge over DSRA, IPA and SFA for the respective series. c) In case of any shortfall in transfer from escrow account to DSA, AMC shall make good the shortfall from the funds from other account(s) to DSA.
Interest payment mechanism T – Interest payment date
*Any amount drawn from the DSRA should be deposited back in the account
Redemption mechanism T – Redemption date
Salient features of the Rs 200 crore taxable bonds
|
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
|