Search the Internet          Tips  Sites: Finance, Investment

Crisil lowers Maharashtra bonds rating to default

BS Bureau in Mumbai

Rating agency Crisil on Wednesday downgraded two irrigation bond programmes of the Maharashtra government to the default category.

The significance of this downgrading is enormous because it is a reflection on the state government's ability to meet its debt obligations.

In July, Crisil downgraded the Maharashtra Krishna Valley Development Corporation bonds. Today Crisil downgraded the bond programmes of the corporation and the Vidarbha Irrigation Development Corporation from BB+ to D.

Rating BB+ indicates 'inadequate safety', while D indicates the rated instrument is in default or is expected to default on maturity.

The new ratings suggest the bond programmes of these corporations are of a non-investment grade.

Reacting to the downgrade, state Finance Minister Jayant Patil said: "We have never defaulted in recent times and have met all our principal and interest payments for the two corporations. Payments for the Vidarbha project were made 10 days before the due date. Maharashtra Krishna Valley Development Corporation had been seeking to offer a rollover option to investors on the maturity of a particular bond series."

Principal finance secretary A K D Jadhav added: "We reiterate our denial of the alleged delay in payments by the Maharashtra government. In July we had intimated Crisil that a new mechanism was being put in place to ensure that payment delay was pre-empted."

Crisil chief rating officer Rupa Kudwa said: "We rate four bond programmes of Maharashtra. They are of Maharashtra Krishna Valley Development Corporation, Vidarbha Irrigation Development Corporation, Tapi Irrigation Development Corporation and Konkan Irrigation Development Corporation. All the four are supported by the same payment structure. The default in payment by the Krishna and the Vidarbha projects indicates that the payment mechanism that requires funds to be transferred from the government to the respective corporations, is faulty."

Crisil has emphasised that another parameter in downgrading was the reluctance of investors as well as the trustees of these bond programmes to invoke the government guarantee upon non-payment by the corporations.

"In India, they do not do so," a Crisil executive said.

In July when Crisil downgraded the bonds, the state government had indicated it had put in place a mechanism to fund the corporation concerned prior to the interest and principal payment dates, regardless of the notification from the trustees.

However, the continued delay in debt servicing indicated the payment mechanism needed strengthening, a Crisil release said.

Powered by

ALSO READ:
More Money Headlines