CRISIL Rating Advisory: Rating on bonds issued by Govt of Andhra Pradesh entities

India Infoline News Service | Mumbai |

CRISIL has its outstanding ratings of ‘CRISIL A(SO)/Stable’ on the bonds issued by four entities of the Government of Andhra Pradesh (GoAP)

The Parliament has recently passed the Andhra Pradesh Reorganisation Bill to carve out a separate state of Telangana by bifurcating the existing state of Andhra Pradesh. The bill was attested by the President of India on March 1, 2014, published in the official Gazette and the appointed day for the new state has been announced as June 2, 2014. CRISIL believes that while carving out of the two states from Andhra Pradesh will be completed by June 2, 2014, the bifurcation of all assets and liabilities of the state government entities will take longer and is unlikely to be completed before 6 months. During this period, CRISIL continues to closely monitor the developments related to the reorganisation of Andhra Pradesh, and its impact on the outstanding ratings of the bonds of the state government entities, and if needed will take appropriate rating action.

CRISIL has its outstanding ratings of ‘CRISIL A(SO)/Stable’ on the bonds issued by four entities of the Government of Andhra Pradesh (GoAP). The entities that have issued these bonds are listed in Annexure 1. The ratings on these bonds are primarily based on unconditional and irrevocable guarantees, and the support these entities receive, from GoAP. The ratings, therefore, reflect the credit risk profile of GoAP.

CRISIL evaluates a state government’s credit quality on the basis of three rating parameters, namely, the state’s economic structure, the financial position of the state government, and the economic management of the state government. CRISIL believes that the reorganisation of Andhra Pradesh will impact two of these three rating parameters, namely, the economic structure and the financial position of the resultant states. CRISIL, however, expects that the resultant states of Andhra Pradesh and Telangana will continue its prudent economic management, which refers to reform orientation and progressive policies on account of expected continuance of the bureaucratic setup.

The economic structure of the resultant states of Andhra Pradesh and Telangana will depend on several factors, including the degree of industrial activity and investment attractiveness of the states after reorganisation. The financial position of the resultant states will depend on the assets (especially the power plants and irrigation projects) with each of the states, the extent of the debt; its size in relation to the revenue receipts after the reorganization and respective state’s dependence on central devolutions. Additionally, the resultant state of Andhra Pradesh has been given a ‘special category’ status by the Government of India (GoI) for a period of five years and will have access to additional fiscal assistance. GoI has also announced special packages and fiscal incentives for the backward regions, and setting up of educational institutions and additional infrastructure in Andhra Pradesh.

CRISIL believes that while carving out of the two states from Andhra Pradesh will be completed by June 2, 2014, the bifurcation of all assets and liabilities of the state government entities will take longer and is unlikely to be completed before 6 months. During this period, CRISIL continues to closely monitor the developments related to the reorganisation of Andhra Pradesh, and its impact on the outstanding ratings of the bonds of the state government entities, and if needed will take appropriate rating action.
 

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