IND-RA gives AA rating to Bangalore Metro
Bangalore Metro Rail Corporation Ltd’s (BMRCL) has been rated by the India Ratings & Research (Ind-Ra) proposed Rs 500 crore bonds at IND AA(exp). The company has rated the first bond transaction of metro rail project in India. AA ratings means a debtor who has the capacity to meet its financial commitments. It differs from the highest rated obligors only in small degree.India Ratings & Research (Ind-Ra) is one of the most respected rating agency in India. The company committed to providing the India’s credit markets with timely, accurate and prospective credit opinions. Moody, Fitch Ratings and Standard &Poor’s are some of the credit rating agencies.
Ind-Ra had a glance at the memorandum of understanding, while rating BMRCL’s debt, entered into by the developers and equity holders- the Karnataka Government, the Union Government and BMRCL.
The agreement clearly explains the responsibilities of the two sponsors-Government of Karnataka and Government of India. Any cost exceeds on the project will be bonded by both the sponsors, but the proportion of which will be decided by a committee consisting of central and state civil servants.
Ind-Ra said that the central government released Rs 17,524 crores to eight states for metro projects and Rs 2,970 crores to 28 states and three union territories for urban transport projects over FY 10- FY13. Even the government also applied for overseas development assistance from the government of Japan (from Japan International Co-operation Agency; JICA) to execute metro rail projects.
Fund of worth Rs 62,947 crores were released for metro rails in six states and 64.54 billion Japanese yen for the Bangalore metro rail project. Both the sponsors committed equal equity in BMRCL. But the State government had injected Rs 1,710 crores in equity which is more than the promised amount which was Rs 1,635 crores as on March 30, 2013.
For the project both the sponsors have been given interest- free-sub -debt. The amount of the sub-debt given by the Karnataka Government (Rs 2,269 crore) is more than that suggested and higher than the sub-debt given by the Indian Government (Rs 457 crore). GoI’s support for the project emerges from guaranteeing the AFD and JICA loan for the project. Thus, Government of India is liable to foreign exchange risks through AFD and JICA loan.
The AFD, a public development finance institution, signed a project financing agreement with the BMRCL for providing a Euro 110 million (about Rs 787 crore). Even in October 2011, Hudco has sanctioned a loan of Rs 700 crores to the Namma Metro project. Both the Karnataka and Center government have taken a 15 per cent each equity stake in BMRCL.
While rating metro rail projects where state governments and Government of India are providing positive support. Ind-Ra is going to use the same rating philosophy
The metro rail projects would not be covered by this rating philosophy which are built and financed by private companies through the public-private-partnership route under concessions granted by the government.
Ind-Ra observes urban infrastructure improvement as one of the target parts of the central government. The government is providing support to the urban local bodies (ULBs) and the states to improve urban infrastructure.
