Detailed Rationale

Crisil Ratings has removed its rating on the bonds issued by Andhra Pradesh Capital Region Development Authority (APCRDA) and guaranteed by the government of Andhra Pradesh (GoAP) from 'Rating Watch with Developing Implications’ and upgraded the rating to ‘Crisil BBB- (CE)’ from ‘Crisil BB+ (CE) while assigning a ‘Stable’ outlook.

 

The rating action follows adherence to the T-structure since March 7, 2025, wherein the debt service reserve account (DSRA) balance was Rs 269 crore (equivalent to two quarters of debt obligation) and bond servicing account (BSA) balance was Rs ~203 crore (equivalent to 1.5 quarters of debt obligation), in line with the T-structure of the bonds. The current liquidity is sufficient for meeting the debt obligation over the next three quarters (May 2025, August 2025 and November 2025). The next debt repayment, amounting to Rs 135 crore, is due on May 16, 2025, which will be met through the funds available in the BSA.

 

Crisil Ratings will continue to monitor the liquidity position of APCRDA. Timely replenishment of BSA after the servicing of the next debt obligation, in line with the T-structure, will remain a key rating monitorable.

 

On January 31, 2024, Crisil Ratings had downgraded its rating on the bond programme of APCRDA to ‘Crisil BB+(CE)’ from ‘Crisil BBB (CE)’, on account of enduring delays in restoration of the DSRA and BSA, as well as frequent non-adherence to the T-structure for the bonds issued by APCRDA. Subsequently, on November 7, 2024, the rating watch was revised to ‘Watch with Developing Implications’ from ‘Watch with Negative Implications’ on account of the improving liquidity position of APCRDA and maintenance of DSRA.

 

The rating is constrained by the continuing poor liquidity position of GoAP due to elevated revenue deficit (21.5% of revenue receipts for fiscal 2024) and high indebtedness (44% of gross state domestic product [GSDP] in fiscal 2024 versus 43.3% in fiscal 2023). This is likely to continue over the medium term as well, considering the high revenue expenditure of the state. Furthermore, the economic management of the state is weak due to reliance on ways and means advances, overdraft facility and special drawing facilities extended by the Reserve Bank of India (RBI).

Analytical Approach

Crisil Ratings has applied its criteria for rating instruments backed by guarantees.

Key Rating Drivers & Detailed Description

Strengths:

Presence of guarantee from GoAP

The issuance benefits from the unconditional and irrevocable guarantee from GoAP for both interest and principal obligation and independent trustee monitoring mechanism.

 

Improving adherence to the T-structure and payment mechanism and overall liquidity profile

The bonds issued by APCRDA are backed by a well-defined T-structure guarantee trigger mechanism. While the structure was not followed since November 2023, the trustee had dipped into the DSRA partly to fund the debt obligation, after which the DSRA was replenished with a delay of almost five months on March 15, 2024. The DSRA was replenished and again dipped into, in May and August 2024 for the purpose of debt servicing in the respective months. After debt repayment in August 2024, the DSRA balance was replenished on September 6, 2024. There has been no dipping into DSRA since September 6, 2024. For the debt obligation due in November 2024 and February 2025, the payment was made through BSA which was replenished ~15 days prior to the due date. The current DSRA balance is Rs ~269 crore (equivalent to two quarters of debt obligation) and BSA balance is Rs ~203 crore (equivalent to 1.5 quarters of debt obligation). The current DSRA and BSA balances are in line with the T-structure. The next debt repayment, amounting to Rs 135 crore, is due on May 16, 2025, which will be met through the funds available in the BSA (replenished 70 days prior to the due date).

 

The timely replenishment of the BSA, after the next debt servicing, in line with the T-structure, will remain a key rating monitorable.

 

Weaknesses:

Modest economic structure of Andhra Pradesh

The state has a weak economic structure with lower-than-average share of the secondary sector and higher share of the primary sector in the GSDP. This has an adverse impact on the tax to GSDP ratio as the secondary and tertiary sectors have higher tax potential. Socio-economic and human development indicators are modest (for instance, literacy rate is 66% versus the national average of 74%), thereby necessitating higher social outlay. That said, Andhra Pradesh has high per capita income and rapid GSDP growth, driven by improved tertiary and primary sectors.

 

High deficit and indebtedness with average economic management

In fiscal 2024, the state revenue rose 10.1% on-year because of growth in collection of goods and services tax (GST) compared to 2.6% growth in fiscal 2023. The state received no revenue deficit grants in fiscal 2024 against Rs 10,549 crore in fiscal 2023 and Rs 17,257 crore in fiscal 2022, based on the Fifteenth Finance Commission recommendation. The tax revenue of the state (including own taxes and share in central taxes) increased 13.3% and 9.2% in fiscals 2024 and 2023, respectively.

 

On the other hand, revenue expenses increased 5% and 26% in fiscals 2024 and 2023, respectively. Hence, the revenue deficit to revenue receipts improved to 22.3% in fiscal 2024 compared to 27.6% in fiscal 2023.

 

Capital outlays have been under review in Andhra Pradesh. It grew ~222% in fiscal 2024 on a low base of fiscal 2023 when capital outlay declined 56% on-year. The gross fiscal deficit (GFD) to GSDP ratio increased to 4.4% in fiscal 2024 from 3.6% in fiscal 2023 on account of higher capital outlays. It is expected to remain elevated in the near term owing to high revenue deficit and moderate capital expenditure. As a result, total debt plus guarantee to GSDP ratio increased to 45.6% in fiscal 2024 compared to 43.3% in fiscal 2023. Andhra Pradesh continues to rely on ways and means advances, overdraft and special drawing facilities extended by the RBI to manage cash flow mismatches.

Liquidity: Adequate

The T-structure requires the presence of two quarters of DSRA and 1.5 times the debt obligation in BSA. As on March 7, 2025, APCRDA had Rs ~269.1 crore in DSRA and Rs ~202.8 crore in BSA in line with the required balances. The current available liquidity (BSA and DSRA) is sufficient to service the next 3.5 quarters of debt repayment.

Outlook: Stable

Crisil Ratings believes APCRDA's bonds will continue to benefit from the unconditional and irrevocable guarantee from GoAP and a defined payment structure.

Rating Sensitivity Factors

Upward Factors

• Timely replenishment of BSA post debt servicing and track record of adherence to the T-structure
• Sustained industrial growth with improvement in socio-economic indicators
• Gradual reduction in state indebtedness to below 35% of the GSDP

 

Downward Factors

• Delay in the replenishment of the BSA and non-adherence of the T-structure resulting in sustained weak liquidity profile
• Increase in indebtedness to above 44-45% of GSDP on sustained basis

Adequacy of credit enhancement structure

The guarantee provided by the state government is unconditional, irrevocable and covers the entire rated amount of the bonds. A trustee-monitored payment mechanism is in place to ensure timely payment of interest and principal obligation.

 

GoAP has made a total budgetary allocation of Rs 836 crore in fiscal 2026 (Rs 1,054 crore in fiscal 2025 and Rs 1,070 crore for fiscal 2024) to meet the debt obligation of APCRDA. As the primary cash flow of APCRDA is likely to remain low, support from the state will remain critical.

 

Stress scenario

Crisil Ratings believes the GoAP will service the debt for which it has provided guarantee in a timely manner, when the cash flow of the borrower may not be adequate for debt servicing.

Unsupported ratings: Crisil B

Crisil Ratings has introduced a 'CE' suffix for instruments having an explicit credit enhancement feature in compliance with the circular from the Securities and Exchange Board of India dated June 13, 2019.

Key drivers for unsupported ratings

The revision in rating reflects a fair track record of regular debt servicing of loans from banks and financial institutions. For arriving at the unsupported rating, Crisil Ratings has considered the primary cash flow that APCRDA derives from land monetisation as well as budgetary support from the state government. Primary cash accrual remains weak, which has been compounded by the reduction in budgetary support from the state government.

About the authority

APCRDA was formed under the APCRDA Act, 2014, for the planning, coordination, execution, supervision, financing and funding of the capital region and capital city area of Andhra Pradesh. The Act was repealed in December 2019 and a policy decision was taken to develop three capitals against one. The Three Capitals Development Act was also repealed in December 2021. In July 2024, there was an active restart of development of Amaravati.

 

Andhra Pradesh government reported financials:

Particulars*	Unit	2024 (Accounts)	2023 (Accounts)	2022 (Accounts)
Revenue receipts	Rs crore	1,73,767	1,57,668	1,53,825
Revenue deficit/ (surplus)	Rs crore	38,683	43,487	5,312
Gross fiscal deficit	Rs crore	62,720	46,403	21,714
GFD/GSDP	%	4.4%	3.6%	1.9%
Debt^/GSDP	%	45.1%	43.3%	43.1%
RR/Interest	Times	5.89	6.19	6.94

^Including guarantees

*Crisil Ratings-adjusted numbers

Key Financial Indicators APCRDA

Particulars	Unit	2024**	2023**	2022*
Operating income	Rs crore	119	63	39
Profit after tax (PAT)	Rs crore	(140)	(208)	(204)
PAT margin	%	(118)	(333)	(523)
Adjusted debt/adjusted networth	Times	0.6	0.5	1.2
Interest coverage	Times	NA	0.13	0.07

*Unaudited financials

**Provisional

List of covenants

The material covenants of the instruments are as follows:

• Neither the bondholders nor the issuer shall have any right to exercise a put option to redeem the bonds, in whole or in part, prior to the respective redemption date.
• The issuer shall be entitled to borrow/raise loans or avail of financial assistance in whatever form as also issue bonds/debentures/notes/other securities in any manner with ranking on pari passu basis.

 

Salient features of the bonds backed by the state government guarantee:

• Non-convertible debentures will have quarterly interest and principal obligation.
• The tenure will be 10 years. The principal will have a moratorium of five years and an equal amortising profile thereafter.
• Upfront creation of a liquidity facility in the form of a DSRA for the next two quarterly debt obligation (in the form of cash or fixed deposit lien marked to the trustee).
• GoAP also has an obligation, along with APCRDA, to replenish the DSRA if used in a time-bound manner under the terms of the guarantee.

 

Annexure 1.1: Transaction structure

Timelines to be followed for structured payment mechanism assuming T1 as the first payment date

Date	Particulars
T1-90	Advance crediting of the BSA of 1.5 times the upcoming debt obligation[1].
T1-15	Trustee to monitor the adequacy of collection (interest and principal) in the BSA on T1-15 day and intimate the issuer/GoAP in case of any shortfall.
T1-7	If the shortfall is not covered by T1-7 day, the debenture trustee shall utilise funds from the DSRA account to meet the shortfall.
T1	Debt servicing date, when payments are made to the investors.
T1+5	If there is a continued shortfall in the DSRA account due to utilisation of funds, the issuer/GoAP will restore the DSRA account within five working days.
T1+10	If the issuer fails to replenish the DSRA, the trustee will inform the GoAP in writing regarding the shortfall in the DSRA so that necessary arrangements can be made for the replenishment of the DSRA by the issuer or the GoAP.
T1+15	The DSRA to be replenished by APCRDA/GoAP.
T1+30	If the DSRA is not replenished to the requisite extent by the T1+30th day, the trustee shall send a soft notice to GoAP intimating that the guarantee shall be invoked if the state government fails to replenish the DSRA.
T1+75	The debenture trustee should independently monitor the adequacy of collection (interest and principal) in the BSA on T2-15 (that is, 15 days prior to the next debt servicing date) and intimate the issuer in case of any shortfall.
T1+83	If the shortfall is not covered by T2-7 day, the debenture trustee shall use funds from the DSRA to meet the shortfall.
T1+90	Debt servicing Trustee shall send a notice to GoAP to replenish the full DSRA of two quarters within 30 days
T1+120	Invocation of GoAP guarantee by the trustee for redemption of the outstanding principal and interest obligation.
T1+130	Last date by which GoAP shall transfer the requisite funds into the designated escrow account as per the notice of invocation served by the trustees.

 

[1]Standing instruction to the principal banker

Any other information: Not Applicable