Crisil downgrades State bonds

Five bond issues of the Maharashtra Krishna Valley Development Corporation (MKVDC), two of Vidarbha irrigation and one each of Konkan irrigation and Tapi irrigation, carrying structured obligations were also downgraded. The ratings for the bonds were based on support provided by the State Government through tripartite arrangement with bond issuers and the trustees to the bond holders, Crisil said.

The bond issues are unlikely to generate adequate revenues for debt servicing on these bonds and hence budgetary support was extended by the State Government for debt servicing obligations. With Crisil’s BB+ rating, the fate of various bonds issue amounting to Rs 2,564 crore by the State-run corporations hangs in the balance.

The MKVDC, which had undertaken a massive work amounting to nearly Rs 11,000 crore to harness Krishna river water share of the State, would be the major loser. The MKVDC had proposed separate bond issues amounting to Rs 2,134 crore.

The Vidarbha Irrigation Development Corporation had planned bond programmes of Rs 308 crore. Furthermore, Tapi Irrigation Development Corporation had proposed a bond issue of Rs 91 crore while the bond issue of the Konkan Irrigation Development Corporation was fixed at Rs 31 crore.

Ironically, the loss-making MSEB which was to float its bond issue of Rs 250 crore, would have to think twice now before approaching the market in the present circumstances. Similarly, the State-run Maharashtra State Road Development Corporation, which has floated the bond issue of Rs 350 crore last month, may have to wind up operations.

"The rating also takes into account the State Government’s stated commitment to honour other financial obligations in a timely manner. It further added that the government intends to get further clarity on the extent of possible liabilities over the life of the DPC project. "Should the issues in this transaction be resolved satisfactorily, the rating has the potential to move up into higher category," the Crisil said.

Crisil, however, said the Government had initiated several significant steps towards fiscal correction, including measures to rationalise expenditure and enhance non-tax revenues through levy of user charges. This, togther with Maharashtra’s strong and resilient economic basic augurs well for State finances over the medium term, it added.

However, an important element was the need to improve the financial viability of MSEB. In the absence of this, Crisil expects that the power purchase payment liability of MSEB towards DPC would continue to partially fall on the government which has guaranteed these payments, with prospects of further worsening of the State’s fiscal position.