How An Andhra Government Entity Avoided Default At The Last Minute
The money was raised to finance priority infrastructure development projects in Amaravati.
An urban development plan fraught with opposition and bureaucratic delays have resulted in an Andhra Pradesh state government entity nearing a default on its Rs 2,000 crore bonds.
The Andhra Pradesh Capital Region Development Authority is expected to receive Rs 570 crore this week from its state government, so it can replenish its escrow account and make due payments, according to two people in the know.
APCRDA’s debt servicing is due on Nov. 16, said the first person quoted above, who is one of the bondholders.
The amount has been approved and sanctioned by the government, and this would be shortly sent to the secretary in the finance department for the release of funds, both the people added.
On Nov. 2, rating agency CRISIL downgraded these bonds to ‘BBB+ (CE)’ from ‘A- (CE)’, maintaining a watch on the rating with negative implications.
The rating action was due to delays in release of funds by the state government, which caused the company to not meet its timely debt servicing ability and non-adherence to the T-structure of the bonds, CRISIL said in a note.
The money was raised in 2018 to finance priority infrastructure development projects in Amaravati, according to the issue document reviewed by BQ Prime. The document showed that in 2017, APCRDA's expenditure stood at Rs 87.4 crore and the income stood at Rs 132 crore. These are the last available financials of the entity.
At the moment, APCRDA requires Rs 152 crore to make the required payments to bondholders. This includes Rs 100 crore as principle and Rs 52 crore as interest, the second person quoted above said.
Once the finance department secretary clears the amount, it would take about one or two days for the money to come in APCRDA’s account. The obligation is expected to be met before the due date, this person added.
Reasons For Delay
As per the agreement, APCRDA must utilise its own revenue to maintain the escrow account, the second person said.
However, the revenue has been impacted due to Y S Jagan Mohan Reddy government's proposal to develop three state capitals, this person added.
In 2019, the government had proposed three capitals - Visakhapatnam (executive), Amaravati (legislative) and Kurnool (judicial). However, the plan never saw the day's light as farmers, who had given their land for construction, agitated against the shifting of capital out of Amaravati.
The development activity then declined and revenue generation suffered for APCRDA, the second person explained. Approximately Rs 3,300 crore-worth land had to be monetised, which would be the main source of revenue, the person added. However, litigation has blocked this.
The Way Forward
In July, the Supreme Court deferred relaed hearings to December. It was then understood that the state may not have a capital city before the upcoming assembly elections in 2024.
Till the case doesn't get resolved, the revenue of APCRDA may continue to be impacted, the second person said.
As of now, the investors are not planning any action against the state government entity till the payments are resolved this week, the first person said.
