Rating Rationale
April 25, 2023 | Mumbai
The Kolkata Municipal Corporation
Rating migrated to ‘CRISIL A/Stable'; Rating Withdrawn
 
Rating Action
Rs.10 Crore Bond^CRISIL A/Stable (Migrated from 'CRISIL B+/Stable ISSUER NOT COOPERATING*'; Rating Withdrawn)
Corporate Credit Rating&CRISIL A/Stable (Migrated from 'CRISIL B+/Stable ISSUER NOT COOPERATING*'; Rating Withdrawn)
^ *Issuer did not cooperate; based on best-available information
& *Issuer did not cooperate; based on best-available information
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

Due to inadequate information and in line with the Securities and Exchange Board of India guidelines, CRISIL Ratings had migrated its rating on Kolkata Municipal Corporation (KMC) to ‘CRISIL B+/Stable/Issuer Not Cooperating'. CRISIL Ratings has withdrawn its rating following a request from the corporation with the confirmation that there are no dues against the corporate credit rating and no bond has been issued against the bond rating. Consequently, CRISIL Ratings is migrating the rating to 'CRISIL A/Stable'. The rating action is in line with the CRISIL Ratings withdrawal policy.

 

The rating reflects the strategic and political importance of Kolkata to West Bengal, the healthy financial risk profile of the corporation and its strong legal framework. These strengths are partially offset by the corporation’s large, committed expenditures requiring dependence on government of West Bengal (GoWB), limitations on its ability to generate own revenue, modest service arrangements and low cost of recovery.

Key Rating Drivers & Detailed Description

Strengths:
Strong economic base

Kolkata, the capital of West Bengal, is the third largest city (after Mumbai and Delhi) in India with a population of around 4.5 million (2011 census). The city has robust land, water and air connectivity. Hence, it has high social, locational, and political importance. A literacy level of 87% (2011 census), compared with all-India average of ~73% (2011 census), indicates a good human resource pool. It is the main business, commercial and financial hub of east India with economic growth prospects. This is, however, offset by the sizeable slum population, amounting to ~30% of the total population of KMC. The slums use a significant part of available services provided by the corporation without contributing any significant revenue.

 

Healthy financial risk profile

The corporation’s revenue receipt and operating surplus increased to an estimated Rs 3,842 crore and Rs 72 crore, respectively, in fiscal 2023 (provisional) from Rs 3,425 crore and Rs 46 crore, respectively, in fiscal 2022 (provisional) driven by steady growth in own tax and non-tax income. Performance was supported by consistent contribution of GoWB to receipts through grants and shared assigned revenues. KMC has adequate liquidity, driven by need-based financial support from the state government. However, operating surplus is limited owing to high committed expenditure towards payment of contractual wages.

 

As on March 31, 2023, cash and equivalent stood at Rs 1,500 crore, against debt of ~Rs 250 crore. The debt has been taken for projects related to Kolkata Environment Improvement Investment Programme (KEIIP). The loan is availed as a tripartite agreement between government of India (GoI), GoWB and Asian Development Bank. It is provided to GoI, which in turn is on-lent to GoWB. The latter then on-lends the amount to KMC as an implementation agency for the KEIIP project. Loan is being serviced by GoWB and GoI. The state government has not charged any interest, leading to no debt charges for KMC since the issuance. CRISIL Ratings understands that the entire servicing burden for this KEIIP loan will be borne by GoI and GoWB.

 

Favourable legal framework

The Kolkata Municipal Corporation Act gives the corporation the right to borrow and provide its tax revenue as security though the legal framework requires prior permission from the state government. The Act empowers the corporation to borrow any sum necessary to cover expenses in executing the provisions of the Act, discharging loans contracted under the Act or making good any deficit in the budget estimate. The Act also provides for the formation of a sinking fund and allows the corporation to levy property tax, provide rebate or charge penalty on unpaid taxes.

 

Weaknesses:

Modest service arrangements and collection efficiency

Collection efficiency of property tax has improved over the years but remains subdued at 55-60%. Water and sewerage taxes are collected from bulk units (housing societies and industries), but no taxes are levied on residential units. Collection efficiency of water charges is high; however, Kolkata is one of the few large cities where there is no metering for domestic connections. Consequently, although existing service facilities are good with water supply population coverage at 95%, unaccounted-for water is high at 60%. Inability of the corporation to efficiently tax all the services limits its own-revenue raising ability.

 

KMC is undertaking extensive projects for solid waste management, which are expected to be completed in the next 3-4 years. KMC has 100% coverage in sweeping and waste collection. KMC’s sewerage coverage is average at 60%. To improve the service arrangements, KMC is implementing projects under KEIIP and other central and state-sponsored schemes.

 

High dependence on state government

The corporation’s major revenue sources include property and other taxes and non-tax revenue, such as advertisement, revenue from rent and lease, among others. These sources account for 55-60% of revenue, while grants from the state government account for the balance. While the corporation does not levy octroi or receive GST compensation, the state supports KMC through shared assigned revenue and grants. Majority of the capital expenditure (capex) is funded by the state government through grants under various schemes. Timeliness and adequacy of funds from GoWB will remain a key rating sensitivity factor.

Liquidity: Strong

Liquidity will remain strong supported by cash and fixed deposits. Cash and equivalent were ~Rs 1500 crore as on March 31, 2023. KMC’s current debt obligations are being serviced by the State and the Centre and this is expected to continue.

Outlook: Stable

CRISIL Ratings believes the debt protection metrics of KMC will remain healthy supported by stable own-revenue receipts and the support from GoWB.

Rating Sensitivity Factors

Upward factors

  • Steady increase in revenue receipts with operating surplus to revenue receipts ratio over 15%
  • Significant improvement in property tax collection efficiency and cost recovery of services

 

Downward factors

  • Reduction in support from the state government
  • Large, debt-funded capex weakening the debt protection metrics

About the Corporation

KMC covers 206.08 sq km and a population of 4.5 million (as per the 2011 census). The provisions of the Kolkata Municipal Corporation Act, 1980, govern KMC. Kolkata is a hub for business activity in east India. The major services provided by KMC are water supply, solid waste management, sewerage/drainage and primary education.

Key Financial Indicators

Particulars

Unit

2022

Provisional

2021

Provisional

Revenue receipts

Rs crore

3,425

4,168

Revenue surplus

Rs crore

(46)

343

Revenue surplus / revenue receipts

%

-1%

8%

Source: Kolkata Municipal Corporation, CRISIL Ratings

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate

Maturity date

Issue size (Rs.Crore)

Complexity level

Rating assigned with outlook

NA

Bond**

NA

NA

NA

10

Simple

Withdrawn

**Not issued

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Corporate Credit Rating LT 0.0 Withdrawn 24-02-23 CRISIL B+ /Stable(Issuer Not Cooperating)* 12-12-22 CRISIL B+ /Stable(Issuer Not Cooperating)* 30-04-21 CCR BB+ /Stable(Issuer Not Cooperating)* 26-08-20 CCR A+/Stable CCR A+/Stable
      --   -- 23-03-22 CCR B+ /Stable(Issuer Not Cooperating)*   --   -- --
Bond LT 10.0 Withdrawn 24-02-23 CRISIL B+ /Stable(Issuer Not Cooperating)* 12-12-22 CRISIL B+ /Stable(Issuer Not Cooperating)* 30-04-21 CRISIL BB+ /Stable(Issuer Not Cooperating)* 26-08-20 CRISIL A+/Stable CRISIL A+/Stable
      --   -- 23-03-22 CRISIL B+ /Stable(Issuer Not Cooperating)*   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information

  

Criteria Details
Links to related criteria
Rating Criteria for Municipal and Urban Local Bodies
CRISILs rating methodology for future flow securitisation

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