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Improving Access to Capital Market through Municipal Bonds
PEARL Programme JNNURM
Workshop ProceedingsWorkshop
Proceedings
19 September 2013, Multipurpose Hall, India International Center
New Delhi
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Page 1
Acknowledgement
The Institute wishes to express its sincere appreciation to the following individuals for their
guidance and support:
Ministry of Urban Development, Government of India:
1. Ms. Nisha Singh, JS, MoUD & Mission Director, JNNURM
2. Mr. Anand Mohan, Director, MoUD
3. Technical Cell, JNNURM, MoUD
Team at NIUA:
Advisor: Prof. Jagan A. Shah, Director, NIUA
Project Coordinator: Dr. Debjani Ghosh, NIUA
Compilation: Ms. Nilanjana Dasgupta Sur, NIUA
Rapporteurs:
1. Ms. Shilpi Madnawat
2. Mr. A Nanda Kishore
3. Ms. Rita Dey
4. Ms. Aastha Joshi
IT Support:
1. Ms. Indu Senan
2. Ms. Sangeeta Vij
3. Ms. Supreet Narang
4. Ms. Santosh
Admin Help:
1. Mr. Diwan Singh
2. Mr. H.P.Pandy,
3. Mr. Ajoy Kashep
Page 2
Content Acknowledgement
1
Contents
2
Abbreviations
5
Introduction to Workshop
6
The Event
Inaugural Session 7
Welcome Note
Inaugural Address
Key note Address
Points for Discussion
Vote of Thanks
Technical Session 1: Importance of Credit Rating and Financial Management
11
Opening Remarks by the Chairperson
Panelist 1: Ms. Aditi Nayar, AVP, ICRA
Panelist 2: Mr. Shameek Ray, Head, Debt Capital Markets, ICICI Securities
Primary Dealership Ltd.
Panelist 3: Mr. Alok Shiromani, Head, Technical Cell, JNNURM, MoUD
Technical Session 2: Role of Credit Rating in Accessing Capital Market
17
Opening Remarks by the Chairperson
Panelist 1: Mr. Nagarjan Narasimhan, Senior Director- Ratings, CRISIL Limited
Panelist 2: Mr. Madan Sabnavis, Chief Economist, Credit Analysis and Research
Limited (Care)
Panelist 3: Mr. Tarun Bansal, Regional Head – North India, India Ratings and
Research Private Limited
Concluding Remarks by the Chairperson
Page 3
Technical Session 3: Experience of ULBs in Securing Good Rating in Accessing Bond Market
25
Opening Remarks by the Chairperson
Panelist 1: Mr. S. S. Hastak, Exe. Engineer and Nodal Officer (CBUD), Nagpur
Municipal Corporation, Maharashtra
Panelist 2: Mr. Rahul Joshi, Chief Operating Officer, Powertec Engineering Pvt
Ltd
Points for Discussion
Technical Session 4: Regulators and Investors Response to Constraints in Issuing Municipal Bonds
32
Opening Remarks by the Chairperson
Panelist 1: Mr. Ananta Barua, Executive Director (Bonds), SEBI
Panelist 2: Mr. Ashish Sable, SVP & Head, SBI Capital Markets Limited
Points for Discussion
Concluding Remarks by Chair
Technical Session 5 - Concluding Remarks and Way Forward
38
Concluding Remarks and Way Forward: Mr. A.S. Bhal, Economic Advisor, MoUD
Vote of Thanks: Ms. Shyamala Mani, Prof. NIUA
Annexure 1: Agenda of the Workshop 39 Annexure 2: List of Participants
41
Annexure 3: Profile of Chairperson and Speakers
43
Annexure 4: Presentations
47
Importance of Credit Rating and Financial Management in Accessing Capital
Markets : Aditi Nayar‐ ICRA Limited
Need for Credit Rating and Financial Management Reforms in JnNURM Cities:
Alok Shiromany, Team Leader Technical Cell Leader, Cell, JnNURM, MoUD
Improving access to capital markets to Municipals - Role of credit rating: Madan
Sabnavis, Chief Economist, CARE Ratings
Page 4
Role of Credit Rating in Accessing Capital Markets for Urban Local Bodies:
Nagarajan Narasimhan, Senior Director, CRISIL Ratings
Experience of ULBs in Securing Good Rating in Accessing Bond Market: Rahul
Joshi, Chief Operating Officer, Powertec Engineering Pvt Ltd
Nagpur Experience on Accessing Bond Market: S. S. Hastak, Nagpur Municipal
Corporation, Nagpur
Fund raising through Municipal Bonds Investors response to constraints in
issuing municipal bonds: Ashish Sable, SVP & Head , SBI Capital Markets Ltd.
Page 5
Abbreviations
AMC Ahmadabad Municipal Corporation
AT&C Aggregate Technical and Commercial
CREF Credit Rate Enhancement Fund
DPR Detailed Project Report
FRBM Fiscal Responsibility and Budget Management Act, 2003
FSDC Financial Stability and Development Council
GDP Gross Domestic Product
GSFS Gujarat State Financial Services Ltd.
GST Goods and Services Tax
HPEC High Power Executive Council
HUDCO Housing and Urban Development Corporation Limited
ICRA Information and Credit Rating Agency of India
ICRIER Indian Council for Research on International Economic Relations
JnNURM Jawaharlal Nehru National Urban Renewal Mission
LBT Local Body Tax
MoUD Ministry of Urban Development
MPL Miscellaneous Professional Liability Bonds
NIUA National Institute of Urban Affairs
PEARL Peer Experience and Reflective Learning Programme
PPP public private partnership
PSU Public Sector Undertaking
RBI Reserve Bank of India
SEBI Securities and Exchange Board of India
SLNA State Level Nodal Agency
SME Small and medium enterprises
SPV Special Purpose Vehicle
T&D Transmission and Distribution
TNUIFSL Tamil Nadu Urban Infrastructure Financial Services Limited
UIG Urban Infrastructure and Governance
ULBs urban local bodies
VMC Vishakhapatnam Municipal Corporation
Page 6
Improving Access to Capital Market through Municipal Bonds
The Event
The Workshop on “Improving Access to Capital Market through Municipal Bonds” was organised
under the leadership of Ministry of Urban Development (MoUD) in collaboration with National
Institute of Urban Affairs (NIUA), who is the National Coordinator of the Peer Experience and
Reflective Learning (PEARL) Programme. The one day event was organised at the Multipurpose
Hall, India International Center, New Delhi on 19 September 2013. The workshop covered topics
like credit Issues with municipalities in the light of the flagship programme “Jawaharlal Nehru
National Urban Renewal Mission” (JnNURM) experience, challenges with investment grade
urban local bodies (ULBs) in issuing bonds, case studies on credit enhanced structures done by
municipalities till date in India and so on. It also focused on areas like Ahmedabad, Nagpur and
Hyderabad’s experience on accessing bond market, challenges faced by Indore ULB in accessing
the capital market despite having good rating, constraints in issuing municipal bonds according
to the regulators and Investors and approach to overcome these challenges. The Agenda of the
workshop is enclosed as Annexure -1. The workshop was attended by officials from Ministry of
Urban Development, Ministry of Finance, mission cities, SLNA, experts and other dignitaries
(Annexure 2). The distinguished Chairpersons and Speakers were successful in bringing about
some lessons learnt from each of the session at the workshop (Annexure – 3). The presentations
made at the workshop are enclosed as Annexure – 4.
Page 7
Inaugural Session
Welcome Note: Dr. Debolina Kundu, Associate Professor, NIUA
Inaugural Session of the workshop on ‘Improving access
to capital market through municipal bonds’ started with
an opening note by Dr. Debolina Kundu, Associate
Professor, NIUA highlighting the agenda of the workshop
which included issues and importance of credit rating and
financial management, role of credit rating and accessing
capital market, experiences of urban local bodies in
securing good rating and accessing bond market and
regulators and investors response to constraints in issuing
municipal bonds. Dr. Kundu welcomed Dr. Isher Judge
Ahluwalia, Chairperson, ICRIER and Ms. Nisha Singh, JS
and Mission Director, MoUD and requested Dr. Ahluwalia
to give inaugural session address.
Inaugural Address: Dr. Isher Judge Ahluwalia, Chairperson, ICRIER
Dr. Ahluwalia started by mentioning that the current
discourse on external finance is usually directed
towards bonds and leverage funding through public
private partnership (PPP) as two available options. In
India, getting funds through PPP in urban sector has
few success stories like Tamil Nadu and Ahmedabad
and it is often related to availability of JnNURM funds
as soft options that encouraged ULBs to stop looking at
capital markets because accessing capital market means
exercising certain disciplines in terms of a credible and
transparent revenue model.
Taking a cue from HPEC report recommendations, she shared some of observations and
suggestions reported - introduction of local bodies finance list in constitution and need for
devolution of part of Goods and Service Tax (GST) to urban local bodies; need for an agreed
program with state government to recover all operation and maintenance costs through user
charge recovery over a period of given time frame; need for a municipal commissioner or a
Page 8
municipal body to know its assets and liabilities and preparation of a medium term framework;
need for timely audits to facilitate financial transparency and accountability considering the
tenure of typical municipal commissioner and demanding better governance. Connecting the
above notes from HPEC report to the conference theme she said, while the subject of workshop
today is finance, underlying it really is governance and role of market in bringing discipline to
ULBs. And there is also greater need for a regulatory framework and credible revenue model to
give comfort to lender.
Extending the discourse on PPP and capital market funding, she said they are often discussed
together. In case of PPP the pace at which it unravels from signing a contract to arrangements
falling apart is rapid mainly due to open expectations, in capital market funding it takes time to
convince a prospective lender especially with no regulatory framework set in place. She also
shared examples like the case of Kanpur solid waste management – a waste to energy plant based
on thermal combustion technology and the role of political economy at state level visible downfall
in collection efficiency by private player and slow upsurge in the recent times. In case of Allandur,
a Mayor led campaign to put 100 percent underground sewerage with public deposits is
appreciated across political parties but a recent administrative decision to integrate Allandur into
Chennai Municipal Corporation made a sudden downfall in user charge payments to private
player. This model was in place since 2004 and it could not sustain even a decade. The third
example being Gorai Landfill closure and Gas Capture Project based on PPP had the potential to
earn carbon credits but due to escalation of the waste estimates Municipal Corporation is now
repaying back to Asian Development Bank with its own funds due to its advance purchase
agreement signed and received advance against future delivery of carbon credits. Dr Ahluwalia
than concluded her address with remark on need for steady long term perspective while planning
for fund mobilization especially through external finance mechanisms. Improving governance
resulting in creditworthiness and market worthiness is the underlying component of accessing
capital market.
Key note address: Ms. Nisha Singh, JS and Mission Director, MoUD
Ms. Singh started the discussion with her remarks
regarding points raised by Dr. Ahluwalia with the
question ‘Why do ULBs miscalculate?’ and need for
professionally qualified urban planners and financial
analysts in ULBs technical staff cadre highlighting the
role of institutional memory, institutional expertise and
so on. Giving examples of horticulture and agriculture
Page 9
cadre in transforming the Himachal Pradesh horticulture revolution and its economy, she
highlighted the point. She also agreed that to some extent JnNURM was not able to bring in the
expert or professional consultant to the state and ULBs which it should have through its capacity
building proposals.
Regarding devolution of a defined percentage of Goods and Service Tax (GST) to the concerned
ULBs and need for a thought and policy directives to the states, to put in the same in cadre of a
local body, she referred to Mumbai Municipal Corporation as an indicative example and also
talked about the need for a professionally qualified urban planners and financial management
experts with a skill driven approach in every ULB in India.
Points for Discussion:
Sharing of Experiences in the Capital Market in India: The discussion started with
the Tamil Nadu case where bonds were mobilized under the pooled finance development
scheme for 7 ULB requirements. Briefing about the scheme and its development since launch
in 2008 and success in 2010 in mobilizing the bonds were discussed. Challenges in terms of
an advisors and merchant bankers driven market; preparation of pooled finance development
toolkit by merchant bankers and lack of ownership; issues relating to fixing the rate;
processing time for approval from government; and aiding mechanisms in the form of credit
rating enhancement fund to cover the expenses incurred in the process of issue of bonds were
also discussed.
Reasons for Success in 2010 in mobilizing the Municipal Bonds in Tamil Nadu:
In 2010 the reason for a success rate might be due to the improved market conditions. Other
reasons might be varied like – bidding process for PSU issued bonds with its transparent
process of bidding and selecting a lowest bid might end up giving up mandate to a speculative
rate with possibility of not delivering. The revisions in tender document with a clause clearly
indicating the rejection of a freak bid were other reasons.
Agencies are forced to take the Lowest Bid: Agencies are not forced to take the lowest
bid in all cases and sometimes the agency arranges a merchant banker to meet to understand
the market behavior and based on the feedback received from the meeting, the market rate is
decided. With instance of market rate decided in advance in case of 2010 where TNUIFSL had
a success. Success depends on situations such as the right timing, the right issue size, the
right rate and so on resulting in cautious approach.
The Demand Side versus the Supply Side Constraints: Introduction of JnNURM
reforms aimed at improving the system and the systemic problems that existed within the
Page 10
cities giving the cities a low credit level. On the other hand, there are constraints that are
faced by the merchant bankers typically investors like the insurance funds, provident funds,
and the banks with constraints in investments in bonds due to their internal regulations.
Therefore, the approach towards bond market in India is in the right direction but there is a
need for speeding up the process to have credit worthy cities to access the capital market
either through pooled bonds or directly and also need for consensus between multiple
agencies to minimize the constraints in regulatory framework. Bonds were started and
introduced through USAID-FIRE D project in 1996 with Ahmadabad and Bangalore following
the path with an upward graph till 2008 and as JnNURM progressed it crowded out the
entire borrowing by ULBs. Supply side constraints are regulatory constraints in terms of lack
of conducive and proper environment; lack of rule based borrowing by the ULBs and longer
duration for approval process. Regarding demand side constraints – disinterest in borrowing
by investment grade ULBs in India due to lack of development accountability is one of the
major reasons. There is a need for strengthening the local finance for 80 percent of ULBs
which do not have the financial mean apart from understanding capital absorption capacity
and capital sustaining capacity of ULBs.
The borrowing market scenario in India: After 2008 even the borrowings from banks
have gone down like in the case of total HUDCO lending portfolio where 10-15% portfolio is
related to the urban sector and rest 85% lending to the other sectors. Therefore, there is a
need to create the accountability for all the four corners – lender, borrower, regulatory
environment and voice.
Vote of Thanks:
Dr Debolina Kundu thanked Dr Ahluwalia for chairing the session, Ms Nisha Singh for the
opening remarks and all participants.
Page 6
Session 1:
Importance of Credit Rating and Financial Management
This session focused on the importance of credit rating and financial management in accessing
capital markets in India.
Chairperson: Dr.Isher Judge Ahluwalia, Chairperson, ICRIER
Expecting the session to be interesting and would have informative deliberations, Dr. Ahluwalia
invited the three key speakers Ms. Aditi Nayar, Mr. Shameek Ray and Mr. Alok Shiromani to
make their presentations.
Panelist 1: Ms. Aditi Nayar, AVP, ICRA
Ms. Aditi Nayar started her address by reminding the
audience of the growing importance of the urban sector
and the sector’s increasing share in GDP, and its
financing requirement. She mentioned that for a subset
of ULB’s under JNNURM rated by ICRA the per capita
municipal revenue base was found to be approx. Rs.
2300. This includes both revenue and capital
expenditure, and needs to be covered from own revenue
as well as transfers from the state and central
government.
Page 7
Although there have been some success stories in public private partnerships, real cost recovery
is the key issue that needs to addressed to scale up such ventures. Term lending from banks
haven’t emerged as a major source of funding for urban infrastructure and one of the reason is the
very long tenure of infrastructure projects which sometimes create assets and liability
mismatches. As regards bond issuances, the size is very small as compared to the overall size of
the bond market. But there are some key advantages to bonds which should be looked at by the
urban sectors. Bonds can be structured to have a fairly long repayment period and this is very
helpful for infrastructure projects which may not start generating revenue immediately. Through
pool issuances, smaller issuers can come together as they have in Karnataka and Tamil Nadu and
raise funds from the market. In India, SEBI regulates bond issuances and requires that bonds
which are to be listed are rated by a credit rating agency registered with the SEBI.
Credit rating is essentially a symbolic representation of the rating agencies current opinion of the
relative credit risks in the underlying debt instrument. Basically it is a relative measure of credit
ranking. In India the rating symbols are standardized and in case of ICRA, long term rating scale
goes from AAA to D rates. Now the rating symbols have to be prefixed by the name of the rating
agency. Rating does provide a number of advantages to both the borrowers as well as lenders. It
bridges the information asymmetry that exists between the issuers and the investors.
In the case of urban sectors in India this is particularly important because the market participants
don’t have the knowledge or the tools to adequately access the finances of the ULBs. So the rating
agencies bridge the gap between the ULBs and the market participants.
Also since credit rating is an independent opinion after a fairly rigorous analytical process, it
provides some confidence to the lenders given the relatively weaker accounting systems of ULBs
as compared to the corporate. Also the rating agencies help to widen the investor base, by getting
participants who wouldn’t otherwise invest in unrated papers, or below a certain rating threshold.
The criteria that ICRA follows to decide a ULB’s ratings are many. In terms of legal and
administrative framework the municipal act has to be checked as it outlines the rules and
responsibilities. It highlights the discretionary and the obligatory functions, as well as the revenue
raising powers that the ULB has and that provides the foundation towards understanding the
roles and responsibilities. In terms of the intergovernmental fiscal relationship the most
important is the nature and the consistency of funds transfers. If the devolutions are formula
based it is helpful. In ICRA’s experience, ULB’s devolution policy is mixed across states. Some
states have clear formula based devolution mechanisms and other states haven’t made the norms
clear. In terms of management quality, things that are regarded positively are project
management and execution capability. The kind of safe guards that are adopted against time and
Page 8
cost over runs, the level of computerization, of institutional mechanisms for quick decision
making and the quality of financial statements are also important.
As regards service level characteristics, ULB’s capacity to deliver the required services both in
terms of the operational ability and the revenue adequacy is analysed. Revenue sources like
property taxes and user charges are dependent primarily on the level of economic activity within
the city’s jurisdiction. Track record of the entity in revising user charges is also important.
Collection efficiency is vital indicator of the ability of the ULB to raise revenues to recover costs.
The coverage and quality of services being provided by the ULB relative to peers and the bench
mark is also critical. It helps to access investment required to provide a bench mark level of
services and has implications for the acceptability of tariff increases in the local area. In addition,
the liquidity profile of the ULB’s, the level of debt which is currently under service and the level of
contingent liabilities are also crucial to form an opinion of the financial health of the entity.
It was observed that about 60% of the entities have an investment grade credit quality. Among the
inconsistencies that were found in financial management are inconsistencies in terms of the debt
that was reported in different financial statements for a single year. There was a case, in which the
opening balances for one year and closing balance for the previous year that did not match. Such
inconsistencies reduce the level of confidence in financial data. Some of the suggested
improvements would be a lesser variation between the budget estimates and actuals through
better planning, and a better budgeting process and also a quicker release of audited actuals.
Overall primary dissemination of appropriate information is absolutely crucial to form an opinion
and improve the confidence of the market participants.
Panelist 2: Mr. Shameek Ray, Head, Debt Capital Markets, ICICI Securities Primary Dealership Ltd.
Mr. Ray started by mentioning that the investor
guidelines are very restrictive in India. The provident
fund sector which is into long term assets because they
have long term liabilities, are eligible to invest in
government securities, state government securities,
public sector, private sector and so on, but not in
Municipal Bonds, because it is not an issue by a public
sector, nor by an independent entity. It has a
government linkage, but is in a category of its own. So
this is a grey area. This kind of exemptions should be
Page 9
removed from the system.
Secondly, merely changing the guidelines will not help. There is a common demand from the
government that more money be invested into the infrastructure sector. For that to happen first
of all these projects have to be more bankable. The pension and the insurance sectors are holding
small retail investors money. Fund managers are very risk aware. First the principal has to be
preserved till the small investor retires. The returns have to be decent, but they have to be much
more than decent if the risk is high. If the projects are more bankable money will flow in. Just
changing a guideline will not enable the money to flow in. Apart from certain investors who invest
in the municipal bonds, there are many investors like insurance companies and mutual funds who
look at any kind of debt asset as a trading asset. They want to get in, hold it for a year or maybe
less and get out. Any asset which does not have a readily available market for trading is not
attractive to them. There is an illiquidity premium for illiquid assets.
In case of Tamil Nadu they have successfully placed bonds. The bond issuance size was small and
investors who will hold the bond till maturity had to be found. But, If the idea is to make the
market grow 10 folds or 20 folds then there is a need to have market acceptance of these bonds.
To make the bonds tradable one needs to do a lot of things like improving the financials. The
rating agencies and the MoUD must have regular sessions like this to have conceptual clarity.
Investors can be invited and everything can be explained to them. But at the end of the day if this
kind of exercise is held once in every three years, and there are issuances then it wouldn’t help.
There has to be a target like in one year there will be 2 or 3 issues and a recurring flow.
There was a large issue of Rs 200 crores in 2001 or 2002. The particular municipality involved in
the issue was strong in assets and it had a lot of fixed deposits which was given out to various
banks. Only entities which had an existing relationship with the Municipality and understood the
issue invested in it. But there is a need to bring other investors into the picture.
The bonds have to be listed to have liquidity. Unlisted bonds don’t find takers whether it is a
bank, mutual funds or primary dealers. Regulator actually insists that investment be made only in
listed bonds.
For listing quarterly financials, disclosures are needed. Also other compliance issues have to be
met which can be challenging for the first time issuers and especially those who do not have an
internal team to do it on time. There should be systemic processes and departments to fulfill such
compliance issues. We have been issuers to municipalities. At times we have been impressed by
the professionalisms of the municipal bodies; but this was top driven, coming from the
Page 10
commissioners. It should not only be top driven, it should be bottom driven and then it is
sustainable.
To reach out to the market there would be a need to better understand the process, and have more
sessions with the rating agencies, arrangers and investors. The PSU’s and state level undertakings
follow the tender route for procurement. Generally the PSU processes are fairly transparent and
good. In case of state government undertakings or state level undertakings the processes is often
murky. The tenders are designed by advisors who encourage certain sections of the market to be
chosen and others not to be chosen. The government has to work with the municipalities to make
the tendering process as transparent as possible.
As far as the future is concerned institutional investors must be encouraged to come forward. To
bring the municipal bond market forward public placement route has to be taken, as the private
issue route is more difficult.
Panelist 3: Mr. Alok Shiromani, Head, Technical Cell, JNNURM, MoUD
Mr. Shiromani mentioned that credit rating is an
independent evaluation of credit quality. It highlights for
the investors the weaknesses and strengths that exists in
the municipal finances. It helps in increasing accessibility
to the capital market.
The initiative that the MoUD has taken in this area is to
appoint four well-known credit rating agencies, namely
CRISIL, Fitch Ratings, ICRA, and Care Ratings to rate the
JNNURM cities. This exercise was initiated in January
2008 and initially 65 mission cities were rated. Not all
UIG towns were rated because of lack of information. Out of these 65 cities only36 cities have
received an investment grade rating.
Assessment of the reports of credit rating agencies and the mission directorate’s own assessment
revealed that, even though empowered by the constitution, the cities are not financially self-
reliant. They are largely dependent on transfers and grants from the state and central
government. The grants are reducing so those municipal bodies which are dependent on external
sources are facing a difficult situation. Another important point is that their internal accruals are
very inefficient or insufficient. The ULB’s sources of revenue have inadequately captured the
buoyancy in the economy.
Page 11
There is a lack of exchange relationship between the taxes levied and services rendered. The tax
payer does not get the required services in the town. This is a deterrent in paying higher taxes. All
this leads to under investment and a low equilibrium is achieved. Because ULB’s generate low
revenue and invest less in the infrastructure, consequently, there is less infrastructure facility
within the system.
JNNURM funds were meant to leverage and get more funds from either the market or from the
financial institutions or from PPP. This is something that the ULB’s needs to do. Another aspect
that needs focus is better investment planning. There is an urgent need to take up bankable and
commercially viable projects. Many ULB’s do not prepare detail engineering plans, detail
procuring plans or costing plans. They just prepare a DPR, which is not detailed, and when they
implement the project on the ground there are lot of issues and lot of delays. The DPR originally
prepared is far from reality.
Attempt should be made to reduce the capital cost through appropriate measures. In municipal
financial management and expenditure management area we need to reduce the non-revenue
stream. Appropriate costing of services and better targeting of subsidies is a must. Asset
management is also lacking. ULB’s own source revenue must be increased by increasing property
tax, levying development charges and using land mobilization.
In the area of financial management the municipal bodies have been encouraged to improve their
systems through the mandatory reforms of the JNNURM, like accounting reforms, property tax
reforms, user charges etc. User charges are encouraged to recover 100% of the cost. The
municipal accounting reforms aims to improve the accountability and transparency in the
municipal system. This will help to raise finances, and make the financial statement more
accurate, so that credit rating agencies and the bond markets can understand their finances
better. This will also help in policy formulation. For appropriate fixation of taxes and service
charges the municipal body has to understand the cost of a municipal service. Most municipal
bodies do not know even the cost of delivery of water. In the absence of such information it is
difficult to levy appropriate charges.
Some of the milestones that have been laid down by the MoUD are the preparation of accounting
manuals. Till today 21cities have developed their own municipal accounting manuals. These
manuals are prepared on the basis of a national accounting manual which was prepared by the
MoUD in the year 2005. As of date 32 cities have moved to the accrual system of accounting.
ULB’s have been asked by the Ministry to improve the recovery and coverage of property tax. The
norms specified for property tax collection is 85% coverage of properties in the city and minimum
90% collection efficiency. 42 ULB’s has achieved the first level and 29 ULB’s has achieved 90%
Page 12
and above collection efficiencies. These are the reform mile-stones which have been laid down for
the JNNURM cities.
The Chairperson concluded the session with a vote of thanks to the speakers.
Page 6
Session 2:
Role of Credit Rating in Accessing Capital Market
The second session of the workshop focused on the Credit Issues with municipalities in light of
JNNURM experience. It also talked about the challenges with investment grade ULBs in issuing
bonds and case studies on credit enhanced structures done by municipalities till date in India.
Chairperson: Prof. O. P. Mathur, Distinguished Professor of Economics, NIUA
Prof. Mathur initiated the session by
mentioning that credit Issues with
municipalities in the light of JNNURM has got
wide experience and this is the right time to
talk on the challenges being faced by the with
investment grade ULBs in issuing bonds. He
welcomed the speakers Mr. Nagarajan
Narasimhan, Mr. Madan Sabnavis and Mr.
Tarun to share their views on the topic.
Page 7
Panelist 1: Mr. Nagarjan Narasimhan, Senior Director- Ratings, CRISIL Limited
Mr. Narasimhan started by mentioning that bond
market is 10% of equity markets in India. If equity
markets are in trillions, bond markets are a tenth of
that amount. In that sense, India is a peculiar market
compared to developed nations where bond markets
are many multiples of the equity market.
Of the 65 ULBs, India was rated 20 and of the 65
ULBs rated in total, 20 were rated A, or above. Very
few ULBs actually access the bond market, and in the
last 5 years it has been seen that there is practically
no issuances. Talking about the role of credit rating in
India, he mentioned that:
• Credit rating helps in accessing the market for part funding the projects at the city level.
However, the part funding will depend on the ULB’s credit worthiness.
• It also helps to monitor ULB’s record of service delivery, reform orientation and recovery of
cost services.
• Facilitate in benchmarking of ULB’s and assist them in understanding their development
needs.
• Improve service delivery and enter into Public Private Partnership along with an independent
agency for performance assessment.
Credit rating methodology is typically the involvement of business-related risks, financial risks,
management risks and project risks.
Credit rating of corporate bodies and ULBs is similar in broad aspects. ULBs serve some different
purposes so adjustments must be made in that direction and also include all the risks a corporate
body is exposed to. Some municipalities have a lot of industrial activities or are nodal points in
the logistics chain giving natural advantages to some cities while added to that are the legal and
administrative framework as enablers for ULBs to fix tariffs, raise tariffs, etc. This is termed as the
industry risk.
How well the ULB and municipal body leverages this economic base while providing quality
service is the operating efficiency. So the Corporators look at the revenue surplus or deficit, the
Page 8
capital expenditure, the level of autonomy, whether the tariffs are in line with costs, whether the
ULB is able to enhance these tariffs on a periodic basis etc.
Corporator also look at the socio-economic profile of population, and the efficiency in using the
economic management like the expenditure control, reform orientation, political environment,
etc. Nearly half of the income profile of ULBs is from grants, and the proportion of their own
revenue is worsening. There are two basic problems- half of the ULBs rated are non-investment
grade and the earnings profile is one another problem. Some of the other problems are:
There is a diversity of income sources and there is an over dependence on grants.
Service coverage and quality are not up to the mark, and so ULBs cannot charge more for
them.
In terms of electricity, Bankers have moved on from just noting Transmission and
Distribution (T&D) losses to Aggregate Technical and Commercial (AT&C) losses, which
counts commercial efficiency. Services provided must be measured, billed and the payments
collected to get the returns on investment.
Mr. Narasimhan went on to explain that the surplus depends also on the expenses, and whether
there is a control on the operating and capital expenditures. Capital expenditure will need to
monitor whether the project is being executed in the cost and time envisaged for it, and will
determine whether the ULB can support the project initially from its own revenues before it seeks
other sources of funds- whether it is the government or the capital markets.
Credit enhancement in various forms can, however, take up the overall rating. Some Best
practices are:
Chennai raising money from the bond market
Market linked tax rate system, such as market-relevant property taxes depending on the
locality and the characteristics of the building itself
Jaipur’s incentives for tax collection
Chennai’s efficient tax administration
Nagpur’s enabling legislative profile
The need to access external finances arises from huge need for funding, which cannot be met by
the state governments, as well as the fact that markets have their own expectations. This leads to
certain challenges:
Structural challenges- for which the ULBs cannot do much, and problems at the ULB level.
On the regulatory level, there is an absence of a dispute resolution mechanism, of a secondary
Page 9
market, lack of institutional memory due to transfers, and the regulatory framework must
also ensure ULB independence.
At the ULB level, the problems are that they don’t have latest financials, they practice cash
based accounting, their disclosure standards, and that they must develop more transparent
mechanism and projects based on financial viability.
Mr. Narasimhan also mentioned that there have been no issuances in the last 3-4 years. In the
last 15-odd years Rs. 3000 Crore have been raised, so the appetite exists. An important aspect of
the bond market is that organizations need to first issue and then become regular issuers. That’s
when the investors will also become more comfortable. Credit rating can be increased through
some practices:
Escrow- put some money away to support debts.
Cash collateral and other multi- level support systems.
The market is very long term, like a marathon. It requires commitment, preparation and
investment into your own body to participate in a marathon, and it is the same for participating in
the market. Corporators also need enabling mechanisms from the regulatory side.
Panelist 2: Mr. Madan Sabnavis, Chief Economist, Credit Analysis and Research Limited (Care)
Mr. Madan Sabnavis started by mentioning that he is an
economist by profession and had joined CARE Ratings in
2010, which is when his exposure to ULBs began. Rating
agencies were supposed to rate certain specified ULBs,
and there was an initial rating followed by a surveillance
rate. 13 ULBs were being looked after by Care Ratings.
His experience was that it was firstly difficult to locate
the offices of these ULBs and when found the officials
were surprised and had no idea where the data was.
The second round of surveillance was easier, and some
kind of habit had been developed within these ULBs,
which was a positive signal. The non-investment grade ULBs were cognizant of the fact that they
needed to improve, and make sure they have the numbers.
In 2011, a well performing ULB came to the organisation and wanted an issuer rating, and
therefore were provided with a very good rating. The ULB Was not interested in raising money,
but wanted to highlight this grade on their website as a matter of prestige.
Page 10
ULBs didn’t understand the purpose of credit rating, as they were not interested in borrowing
money. Therefore the ULB treated the process as an expense, and thought in terms of money
saved is money earned. This was a setback for the Agency.
He mentioned that when a Rating Agency talks of bond markets, and asks them to borrow more
from institutions and depend less on the government, that leads to a major challenge. Municipal
Corporations have lots of money but are not obligated to spend it because they’re not obliged to
do so. So for making them more financially viable:
There is a need to change the mindset; and
There must be created demand and supply.
Therefore, according to him, grants must be given to the better performing municipal bodies only,
contingent on certain financial discipline, performance parameters achieved during the year. In
the future there will be a major funding problem. In a bad year, the Government of India must cut
down on expenses and the capital expenditures and projects are also reduced. As the grant kitty
reduces, the distributions reduce and capital expenditure also reduces, to ULBs must be forced to
look at debt markets to make the difference.
Mentioning methodology of creating Bond Markets, he went on to mention that the Agency must
mimic what happens in corporate debt markets. State governments have their own commitments
in terms of the FRBM. Government cannot give guarantees as they have their own liabilities.
Returns must also be comparable to that the market expects. The tax free bonds that have been
issued by the Public Sector Companies have done remarkably well in the current environment, so
the Agency’s need to have some tax benefit given, as well as a comparable market oriented
interest rate, and only then will there be a demand for these kinds of bonds.
Panelist 3: Mr. Tarun Bansal, Regional Head – North India, India Ratings and Research Private Limited
Mr. Tarun Bansal started by mentioning that his
Agency was mandated to rate 21 ULBs, and the
experience was diverse. There were some very
strong ULBs like those from Maharashtra or
Delhi, and some weak ones with low revenue
profile like those from the North East, Rajasthan
and Madhya Pradesh.
Page 11
Larger ULBs were cash surplus but the people governing the city are not aware what they need to
deliver today, and five years from now. They didn’t have a vision about how the city should look
like.
One municipal commissioner mentioned that they were selected for a grant under JnNURM and
no sufficient documents were available other than that. It had to take ministry interventions and
18 months for the Agency to get sufficient information that would allow the Agency to conduct the
rating.
Mr. Bansal questioned the participants by mentioning that how do the Agencies encourage these
cities to invest, plan and plan for the future? It all boils down to governance and what we want to
give to our stakeholders in the next 1-5 years in the form of various services. This will lead to
absorption capacity of the municipalities, because it will lead to more projects planned and ULBs
need for more borrowing and revenue sources and things will then fall in place. However, he
mentioned few steps on starting a bond market:
Incentivisation for debt component in financial structure. A borrowing part included in the
plan.
There must be a regular pipeline. Strong ULBs must borrow to finance, so the market
becomes better and there is more information about the ULB in the market. Being a regular
issuer is important because ULBs will be in an area that is already crowded by Government,
banks and financial institutions and corporate. These three occupy the mind space of debt
investors.
Rating bridges the gap as information on ULB comes out for the first time in the market. It
gives a transition of how various cities and ULBs have performed on their credit ratings over a
period of time, leading to a buildup of confidence.
Builds confidence in ULBs in general.
Pool finance is a wonderful vehicle which is used widely in US. Only Karnataka and Tamil Nadu
have done that in India. It enables weaker ULBs rated BBB or lower to access funds at competitive
rates. Creating an escrow to fund specific projects is also a good idea, and also popular in the US-
an important tourist city there funded its infrastructure by having a cess on room tariff to fund
the Mass Transit Rapid System. In case of new areas developed within the municipality Tax
Increment Bonds are used so that as development goes on, tax is increased to finance further
development in an area. This is also practiced in the US.
In case of Latin America, multilaterals go and invest directly in ULBs and enhance their credit.
This leads to capacity building at the ULB, and the credit rating gets enhanced. In India
Page 12
multilaterals cannot credit or enhance the ULB debts directly. Multilaterals however want to
invest in India.
Concluding Remarks by the Chairperson:
Prof. O.P. Mathur mentioned that right from 1997 to date; there are only 22 ULBs which have
gone to the market. In US, in 2010, the local government debt was 12% of the GDP, so there is no
comparison between the other countries and India. In the process he brought out some vital
points to be considered in terms of bond markets in India. They are:
He mentioned that this was the first time ULBs have been rated in India, and it’s a very new
experience for MoUD. Instruments had been rated before, but not ULBs. The intent was that
this would be a regular feature on the part of the MoUD to rate the municipalities at least
once in three years to gauge improvement, if any.
Secondly, it was trying to capture current status and the difference from investment grade,
the distance it must travel to become investment grade. A small group was created by MoUD
to keep reading these reports to see what kind of a reform agenda emerged from them.
However, the initial protocols changed both in respect of the regularity in terms of rating
which was planned in 2007, and the group that was supposed to read these reports were also
wound up as soon as the personnel changed.
Another vital point was that it was not certain on whose debt is a municipal debt. A municipal
debt is not a guaranteed loan and the RBI doesn’t recognise ULBs as a borrower. They
recognise the central and state governments, but in 16- 17 years they haven’t developed a
mechanism to deal with this. The implicit assumption is that state government will pay
defaults.
Fourthly, there are no bankruptcy laws; therefore any lender is not comfort in terms of
accountability. So the kind of comfort that the lender needs is not present. Bankruptcy laws
will help ULBs access the markets.
Fiscal responsibility is absolutely critical. Municipalities own revenues are just about Rs. 760
per capita, though Rs. 1430 is the total revenue figure that was spoken about in 2007-08. It is
about Rs. 767 or Rs. 768, which is virtually like Rs. 2.5 per capita per day. With this kind of
revenue nothing big will ever happen.
There’s a huge lag between potential of raising municipal revenue and what they can raise. In
fact if there were some norms laid down for this purpose, it would certainly help in improving
their ratings as well as their chances of entering the bond markets.
Prof. Mathur concludes by questioning the participants on the fact that still it is not clear to what
extent the rating depended on the municipal revenue component, which was one of the
components that the rating agencies looked at, and to what extent did the rating depended on
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intergovernmental transfers. There were 7 components, but the others were non-financial in
nature. The two components which were financial and critical for the rating were not clear in
these terms. He also mentioned that the weight-age could be guided by the ministry in forming
regulations. Some kind of weight would give an idea to the ministry, as the weight lies with own
revenue, that would have a different strategy and transfers would have a different strategy.
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Session -3
Experience of ULBs in Securing Good Rating in Accessing Bond
Market
The topic of session 3 was, 'Experience of ULBs in Securing Good Rating in Accessing Bond
Market' that focused on the Nagpur and Ahmedabad’s experience on accessing bond market. It
also focused on the challenges faced by Indore ULB in accessing the capital market despite having
good rating. This session was chaired by Mr. A.S. Bhal, Economic Advisor, MOUD. The
presentations were made by Mr. S.S. Hastak and Mr. Rahul Joshi.
Chairperson: Mr. A. S. Behl, Economic Advisor, MOUD
Mr. A. S. Behl, Economic Advisor, MOUD welcomed the
participants and the speakers to the session. Addressing
the session an interesting topic, he requested Mr. S.S.
Hastak, Executive Engineer, Nagpur Municipal
Corporation to make his presentation and to talk on
Nagpur’s experience in accessing Bonds and securing a
good rating in the market.
Page 15
Panelist 1: Mr. S. S. Hastak, Exe. Engineer and Nodal Officer (CBUD), Nagpur Municipal Corporation, Maharashtra
Mr. Hastak shared some of the experiences of municipal
bonds which were related to Nagpur Water Supply
Scheme Pench-III, Part-I and second for the
Augmentation of Nagpur Water Supply Schemes Pench-
IV. The first Bond was a Municipal Bond that was
accessed for a project called Nagpur Water Supply
Scheme Pench-III, Part-I. The Bond was issued at Rs.
100.00 crores with a 13% rate of interest in January
2001. The repayment period for the Bond was 7years.
The amount that was raised was Rs. 50 Crores and the
actual subscription of Bonds was Rs. 31.12 Crores. The
interest payment period was half yearly and the Trustee
Bank was Bank of Maharashtra, Nagpur. The Consultant for the project was M/s Artefact
Software Ltd., Nagpur and the sole arranger for the project was SBI Caps Limited. The Rating
Agency was M/s ICRA Ltd. Mumbai who gave a credit rating of `AA` to NMC in June 1999.
The second Bond that was accessed by NMC was the Tax Free Municipal Bonds for the project on
Augmentation of Nagpur Water Supply Schemes Pench-IV. The Bond was issued at Rs. 128.30
Crores with an interest of 7.75% per annum in March 2007. The repayment period was 7 years
and the amount raised was Rs. 50 Crores with an actual subscription cost of Bonds at Rs. 21.70
Crores. The half yearly interest was paid to the Trustee Bank i.e. Bank of Maharashtra, Nagpur.
The consultant for the project was M/s Mennen Financial Services Ltd., Mumbai and the sole
arranger was SBI Caps Limited. The Rating Agency M/s Fitch Rating India Pvt. Ltd had given a
credit rating of `AA` to NMC in February 2007.
He mentioned that the experience of Raising of Tax Free Municipal bonds by NMC was not
encouraging mainly due to poor response from subscribes/ investors for making investment in
Municipal Bonds and due to absence of guarantee of State Government for repayment of
Miscellaneous Professional Liability (MPL) Bonds. The other experiences that he shared were –
(1) low trend of revenue increase in ULB, (2) lack of aggressive marketing, (3) absence of
relationship of trust and (4) lower rate of interest available in capital markets.
NMC had also raised loans through the Nationalized Banks as its contribution of 30% after
availing the JNNURM share. In 2010, NMC raised a loan of 200 Crores through nationalized
banks for meeting its 30% share under JNNURM projects. The repayment period was 7 years and
the rate of interest 8.5% -9.5%. Financial Management was done through escrow mechanisms
Page 16
with daily transfer of 20Lakhs from ULB revenue to the escrow account. Bank also allowed 19
months moratorium period in which ULBs required paying interest only. Loan amount was
availed as per the requirement of releasing payment to the agencies involved in the project
implementation.
Mr. Hastak went on to mention that recently NMC is facing problems due to replacement of
Octroi with Local Body Tax (LBT) in the state, which has led to an advert impact on the revenue
collected. This in the process is effecting the payment of the 20 Lakhs that was being transferred
to the escrow account. As this is the initial period of the LBT, there are difficulties being faced
which would improve with the improvement in the LBT revenue.
Lastly, he mentioned that to make the system sustainable there should be a constant flow of
revenue that is available from the municipal sources like property tax, Octroi and so on. The
relationship of trust between the Bank and the Municipal Body is what is required to make the
system successful as in the case of Nagpur Municipal Corporation.
Panelist 2: Mr. Rahul Joshi, Chief Operating Officer, Powertec Engineering Pvt Ltd.
Mr. Joshi shared the experiences of two cities on
issuance of municipal bonds namely Ahmedabad
and Vishakhapatnam. Starting with the Ahmedabad
Municipal Corporation (AMC) case, he mentioned
that the ULB had first issued its Bond in 1998. The
key features of the Bond were:
A bond is not guaranteed by the State
Government.
It had an innovative security mechanism which
involved Escrow’s Octroi revenue from 10 naka’s
to directly go to the two designated accounts – (1) interest payment account and (2) principal
payment account, prioritizing the payment process of all bond holders over all the other
payments of the Municipal Body. The excess money left after this payment would be used for
general fund for the municipal corporation.
However, this innovative method was ratified by CRISIL, who later modified the method and
approach as well. As a consequence CRISIL gave AMC an AA (SO) structural obligation rating.
This resulted that Bankers and investors starting investing in these bonds. The other factors that
secured the CRISIL AA (SO) rating are:
Page 17
In 1996-97, 80% of total revenues comprised Octroi and Property Tax, grants were less than
10%:
Reform of Property Tax was underway – groundwork for move to unit area method of
assessment from ARV method was being laid
Revenue surpluses had been rising for the last three years
AMC had a well defined vision regarding future provision of civic amenities backed by a well
defined capital investment plan for water, sewerage, roads and street lighting (TCE, AIC
Watson). It had also fleshed out in detail the financing plan for its investment plan with the
assistance of US Aid, IL&FS and national and international experts.
The senior management of AMC was highly motivated, market savvy and technically
competent.
Subsequent issues in 2002 – 9% p.a. (AA (SO), Rs 100 cr), 2004 – 6.4% p.a.a (AA (SO), Rs 58
cr) and 2005 – 6% p.a. (AA (SO), Rs 100 cr) had tenors of 10 years each and were privately
placed. They were also credit enhanced through escrow of a mix of Octroi and Property Tax
revenues. The collections in the escrow accounts were distributed pari-passu amongst
existing and new bonds.
To curb growth of revenue expenditure concerted efforts to reduce establishment and
administrative expenditures from 2003 resulted in their reduction from 72% of total revenues
in FY 02-03 to 52% in FY 06-07.
Capacity development at AMC has been supported by institution building by the state in the
form of GSFS Capital & Securities Ltd., acting as an intermediary to facilitate market access
by ULBs and state government entities. GSFS Caps has been the lead arranger for the
subsequent three issues.
Talking on points that the rating agencies look at while giving ratings, he mentioned the
following:
Economic Parameters – nature of economic base and its growth prospects;
Financial Parameters – large, stable own revenue base, high tax and user charge collection
efficiencies, low growing revenue expenditures which are significantly less than revenues, low
debt and good debt management practices, capital expenditures which are predictable with a
proper financing strategy ;
Service Delivery and Managerial Assessment Parameters – infrastructure availability, capital
investment trends, reform track records;
Legal and Administrative Framework – taxing powers, borrowing powers, including, ability to
charge assets and cash flows, functional domain.
The key parameters influencing ratings are: Financial Performance and Service Delivery and
Managerial Assessment
Page 18
Also, conceptualizing and detailing an investment plan and its financing as well as reviewing
municipal accounts and practices to present them in a SEBI format are time consuming
affairs hence, a ULB going in for its first bond issue needs to provide sufficient time for the
same. For instance, it took AMC 22 months from the date of the first resolution of AMC’s
Standing Committee (March 3, 1996) to the date of issue opening (January 16, 1998) to bring
out its first bond issue.
While sharing the Vishakhapatnam Municipal Corporation (VMC) experience while accessing
Municipal Bonds, he stated that the bond was issued to part finance the hundred crore Godavari
Drinking Water Supply Scheme. The AA-(SO) rating by CARE was influenced by several factors,
the prime being:
In 2002-03, 71% of total revenues comprised Property Tax, Other taxes and Water Charges.
grants were less than 20%:
Negligible outstanding debt (Rs. 9.73 crore from LIC) with repayment liability assumed by
Government of Andhra Pradesh.
Positive and growing revenue surpluses over the last four years
VMC had a well defined water supply project detailed in a DPR for which tendering was
underway. It had also fleshed out in detail the financing plan for it’s the water supply project
with the assistance of IL&FS.
The Municipal Commissioner, Deputy Municipal Commissioner and the Mayor were
positively inclined towards a bond issue with the Municipal Commissioner acting as
champion.
Vishakhapatnam Municipal Corporation Act, 1979 allowed creation of mortgage on VMC
property including the water supply project assets being created as well as escrow of all taxes,
duties and cess.
Credit enhancement through escrow of Property tax revenues and 30% of water charge
revenues aggregating to 27% of total revenues of VMC.
He went on to mention that VMC also applied for tax-free status on its bonds in FY 03-04 from
the Government of India, Ministry of Finance through Ministry of Urban Development and
Poverty Alleviation. It received tax-free status on only Rs 50 crore on the total issue size of Rs 70
crore on December 29, 2003. The delay in obtaining tax-free status meant that the bond issue was
delayed till the fourth week of March, 2004. The delay resulted in only Rs 63 crore of the bonds
being placed with the entire shortfall being experienced in the tax-free bond category.
Mr. Joshi mentioned that the process of issuing a municipal bond is long drawn particularly for
the first bond issue taking anywhere from 18-24 months from date of council resolution to the
date of bond issue. Reasons are:
Page 19
Municipal accounts are on a single entry, cash basis. Also, very often they are in local
language and need to be translated into English which takes time.
The account figures particularly cash balances do not tally from one year to the next for
example, closing balance of cash in previous year can be different from opening balance of
cash in the current year.
As there is no balance sheet, the outstanding debt picture has to be built from journal entries.
The capital investment plan and its financing need to be fleshed out in detail.
The process of getting approvals from state governments, central governments, in case of tax-
free status, is time consuming.
Appointing merchant bankers, bond trustees etc takes time.
Preparation of prospectus, credit rating and getting SEBI approval is also a time consuming
process.
For instance, VMC embarked on the process on 7th Feb, 2003, GoAP approval was received
on 20th March, 2003. However, tax-free status from MoF was received on 29th December,
2003 with MoUDPA approval on 12th January, 2004. As a consequence the entire process of
rating, appointing investment bankers, due diligence, SEBI approval and listing agreements
with NSE was squeezed into a period of 2 months.
Further, the short period of time left for expiry of the tax-free status meant that there was no
flexibility in timing the market to attract the maximum interest from investors looking for tax
breaks.
He concluded by giving some useful recommendations for ULBs planning to issue municipal
bonds. Some of the recommendations were -
ULBs should start the process early with the preparation of a CDP and a business plan based
on it,
business plan should have projects identified for investments and a preliminary financing
plan, and
ULBs should obtain credit rating and approvals for issue of tax-free municipal bonds in the
early part of the financial year to get a sufficient time to place the issue under favorable
market conditions.
Points for Discussion:
Municipal Bond Markets in India: The municipal bond market in India could have been
very vibrant if the financial architecture would have been apprehensive of the capital market
that is present within the country. The easiest way to get finance is to approach the public
sector bank that controls 80% of total business. But given the way it is structured, due to lack
Page 20
of competition amongst the banks to generate higher returns and also due to lack of search
for higher profiles of investable projects, the system stops at this point. For a developing
scenario, the municipalities have to have a lot capacity along with trust of the banks to
generate the municipal bonds.
Raising the appetite of the Municipalities for need for money: The HPEC report
mentions that there is a need for 40 Lakh Corer to bring about development in the country.
But this is a normative condition i.e. if everything goes well than the cost calculation would
imply. Under JnNURM Phase I, grants were provided both from the central government and
the state government. Even this amount could not be spent by municipalities, which shows
that the appetite for money within municipalities is lacking completely. So under JnNURM
Phase –II, Planning Commission have suggested that cities should prepare a 10 year plan
illustrating the kind of projects that the city would carry out, expected outcome and ways to
finance the project.
Merchandise the land Vs. Buying Municipal Bonds: Each state, parastatal-bodies and
cities within a state have all got land that makes the landuse pattern in any state very
inefficient. If these lands are merchandised then the appetite for money could be generated. It
should be checked whether merchandising land would be cheaper than buying municipal
bonds from the market in India.
Leveraging of funds under JNNURM -2: Under JnNURM Phase I, a project has equal
share from the central government, state government and the municipal body. But the
scenario should be that MoUD should only provide a concessional amount along with a grant
amount and a loan amount to the municipal corporation, so that ULBs are encouraged to
access the market.
Page 21
Session IV:
Regulators and Investors Response to Constraints in Issuing
Municipal Bonds
This session focused on the Regulators and Investors response to constraints in issuing municipal
bonds. It mainly talked about the constraints in issuing municipal bonds according to the
regulators and Investors and also concentrated on the approaches to overcome these challenges.
It was Chaired by Mr. Parmod Kumar, Director – UD, MoUD and the speakers were Mr. Ananta
Barua, Executive Director (Bonds), SEBI and Mr. Ashish Sable, SVP & Head, SBI Capital Markets
Limited.
Chairperson: Mr. Parmod Kumar, Director – UD, MoUD
The Chair began by setting the context for the fourth
session of the workshop wherein the constraints in issuing
municipal bonds according to the regulators and investors
and the approach to overcome the challenges would be
discussed. Mr. Kumar stated that the Municipal Bond has
recently become such an important issue that it is being
talked about by the Finance Minister himself in many
forums. Municipal Bond has also been made a part of the
Page 22
agenda of Financial Stability and Development Council (FSDC) meeting chaired by the Finance
Minister. The subject is being looked after very meticulously and the Minister has also mentioned
about how to revive the Municipal Bonds.
The Ministry of Finance is regularly pursuing this issue with the Ministry of Urban Development
so as to ease out certain conditions and guidelines as far as the regulatory framework is
concerned. So far as the initiation at the MoUD is concerned, they have fine tuned the
recommendations given by the World Bank report in 2012, regarding the regulatory framework
for structure of the Municipal Bonds and have submitted certain proposals to the Ministry of
Finance and seeking their approval. The Chair also informed the participants about the coming up
of certain guidelines related to this issue which would kick start the schemes.
Mr. Kumar then invited the first speaker of the session Mr. Ananta Barua, to give an insight into
the subject matter.
Panelist 1: Mr. Ananta Barua, Executive Director (Bonds), SEBI
Mr. Barua started by informing the participants
that SEBI as a capital market regulator wants to
encourage all types of issuers to access the capital
market, so that there is a depth in the market and
also the purpose of all types of issuers is served.
SEBI has come out with a lot of regulations
catering to many types of issuers, whether it is to
encourage venture capital or small SME segment.
They even have a different segment as far as
Municipal Bonds are concerned and it forms one of
the important areas which SEBI wants to
encourage.
He went on to discuss about the main constraints in the issuance of Municipal Bonds, as:
SEBI as a regulator allows all types of securities which can be accessed in the market and
which are basically marketable in nature. The first question that arises is about the nature of
the instrument - Municipal Bond. The challenge is with different authorities giving different
notion to it. Even the RBI does not recognize Municipal Bond as a debt of Government and it
does not figure in Central or State Government. This has a lot of implications as different
types of bonds have different set of rules and platform for trading. If it is not in Government
securities, then it has to be in Corporate Bonds and then both have different accounting
Page 23
treatment. For example, in case of governmental securities, even if it is held to maturity then
it need not be a market to market which is just the opposite with Corporate Bonds whether it
is to maturity or for trading. So one thing that possesses challenge is the nature of securities.
Secondly, when an issuer comes, he uses a different vehicle. With Company there is no
problem as the liability is on their book, but as a Municipal Corporation, it has been seen that
they have tried to issue their securities under different structures, called as conduit issuer.
Then the question arises whether they come through a trust route or SPV route. Different
things are being explored and one suggestion that came up was if the Municipal Corporation
can come through floating a SPV company under Section-25 of the Companies Act. Now
under Section-25, the companies are mainly for charitable purposes and they are not allowed
to declare dividend and members also do not get bonus. However, after analyzing the sections
it was permitted for an SPV formed under Section-25 as a company, to access the market. The
coming of a Municipality through this route was one of the challenges.
Thirdly, when a bond is raised, there are two requirements by the bank - whether the bond
needs to be secured or it may be unsecured. If the bond is unsecured, the requirement under
the Companies Act is that they have to create some reserves - trustee and mention from where
these loans are to be serviced. In case of Tamil Nadu, mortgaging the assets of the
municipality is not allowed. However, in states like Maharashtra, assets can be mortgaged to
raise the loan. In USA, a separate bankruptcy law applicable to municipal corporations has
been passed where loans can only be reorganized or readjusted and there is no possibility of
liquidation of Municipal Corporations. But in India there is a corporate law and none for
municipal corporations.
Another challenge is that we have a separate law/ regulations for equity and debt. The
authority of SEBI comes only when the debt securities are issued to the public and as per the
law if you issue it to the public, then it has to be listed. SEBI has no jurisdiction even if is
privately placed, but not listed.
The Speaker then referred to certain points that were already discussed but with a different
perspective on how these can be challenges in issuing Municipal Bonds. He raised the point that
earlier the regime was control of capital issue where there was a merit regulation and the
regulator was seeing whether any project is good or not from the point of view of the investors.
This regime is no longer in place. Now the regulator need not see whether the project is viable or
not, they only have to ensure the disclosures, material disclosures etc. which help the investors to
take informed investment decisions.
In 2008, SEBI came out with the regulations where the shift was totally towards disclosure based
regime and there one of the requirements is rating. Earlier, there were two ratings and investment
Page 24
grade rating was mandatory. Now only one rating would do and it need not be investment grade.
In a totally disclosure based regime, when an issuer comes, there are mainly 3 types of disclosures
Pertains to the issuer – who is the issuer and what is his track record?
What is the project for which the loan is being raised?
The nature of the security, how it will be paid and how this security is arrived at?
Mr. Barua ended by suggesting that as far as Municipal Corporation is concerned, we have to also
see what type of disclosure requirement is to be prescribed. For the Municipal Corporations, the
revenue kind of bonds, where one maintains an escrow i.e. some revenue pools are there which
can service those bonds, that is a good model to access and it can be facilitated fast.
Panelist 2: Mr. Ashish Sable, SVP & Head, SBI Capital Markets Limited
Mr. Sable agreed with Mr. Barua that in case of
Municipal Bonds, the regulatory part is the most
challenging. As stipulated by the Chair, he also felt
that the credit enhancement is an important part of
the issue. He then went on to share his experience and
informed that the SBI capital market has incidentally
handled the middle municipal corporation bonds.
Their experience with the Bangalore and Ahmadabad
Municipal Corporations has been noteworthy.
However, Nagpur Municipal Corporation had faced
under subscription. Things don’t go as planned when
one has a wrong conclusion and then one ends up in
addressing something else.
He feels that it is important to note that typically urban funding methods have been used.
Charges, grants, private participation, monetization and borrowing from the debt markets have
been used worldwide. In India, typically there are soft loans, internal accruals, credits available
from HUDCO and LIC, limited borrowings from the banks and then the bonds.
He said it would be necessary to adopt the following framework to create a vibrant municipal
bonds market in India, its keys points being:
Identifying the viable bankable projects and whether I am handling a bond requirement for a
viable project or not
Crystallizing the means of finance
Page 25
Process of obtaining approval
Structuring of the debt issue – this is where the intermediaries come into play
Credit enhancement
Mr. Sable also raised the point that typically the instrument structure is why bonds. There was a
mention of the term loans. Generally people go through HUDCO or LIC to the banks and find it
easier to raise money rather than raising the amount through bonds. The main reason is that
there is flexibility in term loans whereas bonds require an absolute clarity and delay of even a day
and a rupee is treated as default. Sometimes even the bank may lend money to pay in interest but
that does not happen in a bond. One needs to have discipline when talking about the market. It is
ready to give the amount in a cost effective manner and better than a bank rate, when given the
surety that one is credit worthy and has a bankable project. This type of conditionality has to be
adhered to not only when one launches a bond issue but also on an on-going basis.
He used the platform to suggest that there is a need to understand the limitation of the municipal
corporation to get the financial auditors on a regular basis. It is also important to realize that the
municipal corporation may not be in a position to adhere to the disclosure requirements. So
instead of going to a public, the institutional investors need to be approached. The insurance
companies and the provident funds are the major investors for the municipal bonds.
Points for Discussion:
The Chair mentioned that SEBI has given a provision that companies listed under Section-25
can go for the bonds and for the public listing, but those SPV which are earlier registered as
trust, they will not be allowed. He enquired if it means that the states like Tamil Nadu and
Karnataka will have to re-register themselves under Section-25 or some way out is to be found
out.
To this Mr. Barua said that mostly the trusts have been created as a vehicle of investment on
behalf of investors and not for raising themselves.
One of the participants raised the point that the corporate bond markets in India are badly
under-developed, but it was mentioned that the primary issuance every year is around 3 lakh
crores in last year. So is it that the secondary markets are not developed?
Mr. Barua replied by saying that in India, they are trying to develop that market as in two
limited countries, USA and Korea such that all the requirements for infrastructure,
municipalities etc. can be met. In terms of the proportion of the total amount being raised
both in terms of ratings as well categories of issuers, it has been seen that they are expanding,
particularly in the last couple of years. What we can definitely say is that more and more
people setting up the corporate bond desk is also an important criteria that the market is
developing now.
Page 26
One of the participants suggested that unless the market is broad based including retail,
investors it will never truly be a vibrant market and will remain an institutional market.
Concluding remarks by Chairperson:
The Chair appreciated the points highlighted by Mr. Barua and went on to add certain other
provisions which are being thought of at MoUD, as:
As per the present provisions of the State Pool Finance Scheme, MoUD is supposed to provide
some of the grants to the States to go for those provisions. Currently 50% of the cost of this
institute is to be borne by the government i.e. MoUD. As per the new thought, 100% of the
cost would be borne by the MoUD.
In the case of Credit Rate Enhancement Fund (CREF), earlier the limit was that either 10% of
the bond issue or 50% of the CREF would be given by the MoUD as a grant, whichever will be
lower. But now the thought is to make that one whichever is more.
Another relaxation which is being thought of is that earlier, only sanitation related projects
were taken over first but such restriction is being removed and all those provisions which are
as per the 74th Constitutional amendment act would be included now. Any municipality can
take any project under this state pool finance.
Earlier first the ULB was supposed to go for the property tax reforms but now this condition
has also been relaxed.
Mr. Kumar however stressed that these ideas were simply meant to kick start the scheme and the
real issue is the governance. Until and unless the governance at the ULB level comes, it would be
difficult to revive the Municipal Bond market. He then invited Mr. Ashish Sable to give his views
on the topic.
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Session V:
Concluding Remarks and Way Forward
Concluding Remarks and Way Forward: Mr. A.S. Bhal, Economic Advisor, MoUD
Mr. A.S. Bhal appreciated the discussions made during the interactive sessions and mentioned
that the experience has been very enriching and a real eye opener on some of the issues. As
mentioned by Mr. Pramod, Mr. Bhal also informed the participants that a lot of ferment was
going on regarding the Municipal Bond segment since 2012 and somehow the things were not
happening. But now, with the Finance Minister putting the subject matter in his budget speech, a
lot of ideas have started to pour in. He hoped that the activities carried out between the
Department of Economic Affairs and the Urban Development on the subject would lead to some
good effect on the ground.
Vote of Thanks: Prof. Shyamala Mani, Professor, NIUA
Prof. Shyamala Mani extended a word of thanks especially to the Mission Director Ms. Nisha
Singh to make her presence and inaugurate the workshop and also thanked Dr. Isher Judge
Ahluwalia to deliver the inaugural session. She gave a vote of thanks to the honorable Chairs,
eminent Speakers and all the distinguished participants at the workshop for their active
involvement in the discussions and making the workshop a success.
Page 28
Annexure – 1
Agenda of the Workshop
9:00 – 9:30 am Registration & Tea
Inaugural Session (9:30 – 10:00 am) : Welcome and Introduction to Workshop
• Welcome Note by Dr. Debolina Kundu, Associate Professor, NIUA • Address by Dr. Isher Judge Ahluwalia, Chairperson, ICRIER • Key note address by Ms. Nisha Singh, JS and Mission Director, MoUD
Session 1 (10:00 – 10:45 am) : Importance of Credit Rating and Financial Management Importance of credit rating
and financial management in accessing capital markets
Chair: Dr. Isher Judge Ahluwalia, Chairperson, ICRIER
• Ms. Aditi Nayar, AVP, ICRA • Mr. Shameek Ray, Head, Debt Capital Markets, ICICI
Securities Primary Dealership Ltd. • Mr. Alok Shiromani, Head, Technical Cell, JNNURM, MoUD
Session 2 (10:45 – 11:15 am) : Role of Credit Rating in Accessing Capital Market
Credit Issues with municipalities in light of JNNURM experience.
Challenges with investment grade ULBs in issuing bonds.
Case studies on credit enhanced structures done by municipalities till date in India.
Chair: Prof. O. P. Mathur, Distinguished Professor of Economics, NIUA
• Mr. Nagarajan Narasimhan, Senior Director - Ratings, CRISIL Limited
• Mr. Madan Sabnavis, Chief Economist, Credit Analysis and Research Limited (CARE)
• Mr. Tarun Bansal, Regional Head-North India, India Ratings and Research Private Limited
11:15 – 11:30 am Tea & Snacks
Session 3 (11:30 – 12:15 pm) : Experience of ULBs in Securing Good Rating in Accessing Bond Market
Nagpur and Ahmedabad’s experience on accessing bond market.
Challenges faced by Indore ULB in accessing the capital market despite having good rating.
Chair: Mr. A. S. Bhal, Economic Advisor, MoUD
• Mr. S. S. Hastak, Exe. Engineer and Nodal Officer (CBUD), Nagpur Municipal Corporation, Maharashtra
• Mr. Rahul Joshi, Chief Operating Officer, Powertec Engineering Pvt Ltd
Session 4 (12:15 – 01:00 pm): Regulators and Investors response to constraints in issuing municipal bonds
Constraints in issuing municipal bonds according to the regulators and
Chair: Mr. Parmod Kumar, Director – UD, MoUD
• Mr. Ananta Barua, Executive Director (Bonds), SEBI • Mr. Ashish Sable, SVP & Head, SBI Capital Markets Limited
Page 29
Investors.
Approach to overcome the challenges.
01:00 – 01:15 pm Concluding remarks and way forward
• Mr. A. S. Bhal, Economic Advisor, MoUD • Prof. Shyamla Mani, Professor, NIUA
01:15 – 02:15 pm Lunch
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Annexure -2
List of Participants at the Workshop
JNNURM Experience Sharing Workshop ‐ II Learning from Cities, PEARL Project, JNNURM Venue : Multipurpose Hall, IIC, New Delhi, Date : 18 September 2013
Sl.No
Name Designation Office Address Phone/Mobile
E.mail
1 Lovlesh Devra Delhi NCR Head Creative Circle Nagpur 965050066 [email protected]
2 T.P. Devadass Executive Engineer Tamilnadu Slum Clearance Board, Chennai
943205082
3 V.K. Singh Accounts Officer Nagar Nigam, Allahabad 9839742535
4 Dr. H.S. Dhapila M.O.H. N.P.P. Nanital 9927855808 drharendra
5 Harshul Vrma Business Manager N.K. Buildco, Jaipur 7665622220 [email protected]
6 Ravikant Joshi Advisor CRISIL Infrastructure Advisory, Mumbai
9825042955 [email protected]
7 M.D. Lele Chief Planner, CIDCO 4th Floor, CIDCO Bhawan, Mumbai
942308122 [email protected]
8 Anindya Mallick Senior Director, DELOITTE
Bldg IOB, Cyber City, Gurgaon
8447590828 anmallickdeloitte
9 Shymala Mani Professor NIUA 9811428447 [email protected]
10 Dr. Satpal Singh Research Analyst NIUA 9911151145 [email protected]
11 M. Ramsekhar C.E.O. IPE Global 8130976161 [email protected]
12 Aastha Joshi Research Analyst NIUA 9868040762 [email protected]
13 Debolina Kundu Associate Professor NIUA 9990048720 [email protected]
14 K. Ambedkar Accounts Officer o/o Commissionr, VMC, Vijayawada
986651556
15 J.P. Pant Senior Database ORG Pvt. Ltd., Bectal House
9868581055 [email protected]
16 Promila Jain Research Analyst NIUA [email protected]
17 Paramita Datta Dey Senior Research Officer
NIUA 9911254428 [email protected]
18 Shabana Charaniya Urban Specialist NIUA 9560205528 [email protected]
19 Ramesh Banse XEN MCF MCF 9818646501 20 Anand Bhal MHA
21 Pathan Ayyubkhan Dy. City Engineer Pcnac 9922501721 [email protected]
22 Alok Shiromany Team Leader Tech.cell MoUD 9810174741 [email protected]
22 Sharath Pillaiamarn Refom Expert JNNURM Tech.cell MoUD
23 Rahul Mallik SWM Expert JNNURM MoUD 9899849486 [email protected]
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24 Dr. KSSVV Prasad Head of Deptt., Environmnet Water Supply Division
aaruee associated, Hyderabad
9490623700 [email protected]
25 Prof. Veena Garella Consultant UMC, Ahmedabad 8800588995 [email protected]
26 Paras Magu Manager CRISIL Infrastructure Advisory, Gurgaon
9818399438 [email protected]
27 M. Vinaykumar Executive Engineer Greater Vis Munp., Visakhshu Corporation
9848497464 [email protected]
28 Murali Mohan T. Manager, Deloitte Bldg IOB, Cyber City, Gurgaon
8573910540 [email protected]
29 Nalini Shanglo Research Officer NIUA
30 Archana Roy Research Officer NIUA 31 Ajay Nigam P.O. NIUA
32 Naveen P.O. NIUA 33 R.K. Dahiya System Analyst NIUA 9899727199
34 Ruchi Gupta AVP‐Consultancy Darashaw & Co. Pvt. Ltd.Defence Colony, Delhi
8130622922 [email protected]
35 Rita Dey Urban Planner NIUA 9818050722 [email protected]
36 Rahul Kumar Jha Assistant Engineer V.K.S. Infratech Mgnt Pvt. Ltd
8001656077 [email protected]
37 S.S. Hastak Nodal Officer, CBUD Nagpur Municipal Corpn. 9823098620 [email protected]
38 S.K. Chadha CEUT o/o Enginering Deptt., UT, Chandigarh
7508185401
39 Jnananjan Panda Consultant NIUA‐MoUD 9899656269 [email protected]
40 M.Ahmed J.R.O. NIUA
41 Anand Sahoo Conultant aaruee associated, Hyderabad
9868255122 [email protected]
42 T.K. Majumdar Director (MoUD) MoUD
43 V.P. Singh Commissioner MC, Chandigarh 9872698800 [email protected]
44 S. Viswanathan Commissioner Guwahati Municipal Corporation, Guwahati
9678010456 [email protected]
45 S.V. Singh Director, JnNURM MoUD, Nirman Bhawan 26906969 [email protected]
46 N. Bhattacharjee MoUD, CBUD Nirman Bhawan
47 Anshita Aswani MD UMC Global
48 Swati Ramanathan Co‐founder Janegraha Centre
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Annexure – 3
P R O F I L E
MS. NISHA SINGH
Ms. Nisha Singh belongs to the Himachal Pradesh Cadre of IAS (1987 Batch). She undertook her current responsibilities as the Joint Secretary of MoUD on 28th April, 2011. Prior to this, she was attached with the M/O Health & Family Welfare as a Secretary.
In her over 24 years of experience, she has been associated with several esteemed organizations/ departments. Commencing her career with the Land Revenue Management & District Administration as an Assistant Commissioner (UT) in 1989, some of her earlier assignments include – serving as Divisional
Commissioner in Land Revenue Management & District Administration at Shimla, Member (Admin) at State Electricity Board at Shimla, Managing Director of HP Small Scale Industries & Exp Corporation, Director of Central Information Commission at Punjab. She has also held the position of Director at MoUD and Environment & Forest, Government of HP and Deputy Secretary at M/O Urban Development & Poverty Alleviation.
She is a Post Graduate in Philosophy with First Class and has obtained M.Phil degree in International Relations. She has a First Class Graduation in Geography Political Science.
Ms. Nisha Singh has been an active participant in various Training Programmes, both National and International. She has attended training on ‘The WTO & the New Trade Regime’ organized by the Administrative Staff College of India, Hyderabad; ‘E-Governance & Management of IT’ by Indian Institute of Management, Bangalore; ‘Management of Environment and Natural Resources’ by IILM Institute for Integrated Learning in Management, New Delhi and on ‘Public Private Partnership’ organized by Anna Institute of Management, Chennai. She has also participated in International Training Programmes held at UK and Singapore.
DR. ISHER JUDGE AHLUWALIA
Isher Judge Ahluwalia is Chairperson, Board of Governors, the Indian Council for Research on International Economic Relations (ICRIER). She was awarded Padma Bhushan by the President of India in the year 2009 for her services in the field of education and literature. Dr Ahluwalia was Chairperson of the High Powered Expert Committee on Urban Infrastructure and Services during 2008-2011. She is Member, National Manufacturing Competitiveness Council and is on the Boards of a number of premier research institutes in India. Dr Ahluwalia was Vice Chairperson of the Punjab State Planning Board from 2005 to 2007.
Dr Ahluwalia is a Member of the Eminent Persons Group on India-ASEAN (Association of South East Asian Nations) set up by the respective governments. She is Vice Chairperson, Global Development Network, New Delhi and Member, Board of Trustees of the International Water Management Institute, Sri Lanka. She was Chairperson, Board of Trustees of the International Food Policy Research Institute (IFPRI), Washington D.C. from 2003 to 2006, and a Member of the Eminent Persons Group (EPG) of the Asian Development Bank, which submitted its report, “Towards a New Asian Development Bank in a New Asia” in May 2008. Dr. Ahluwalia received her B.A. from Presidency College, Calcutta University, M.A. from the Delhi School of Economics, and Ph.D. from the Massachusetts Institute of Technology (MIT), all in economics. Her research
Page 33
has focused on industrial development, macro-economic reforms, and issues in social sector development in India. She has contributed articles to professionally refereed journals and also engaged in policy debates through the print and electronic media. She is author/co-author/editor of several books including India’s Economic Reforms and Development: Essays for Manmohan Singh (OUP), which she co-edited with Prof. I.M.D Little in 1998 and which has just been reprinted (March 2012) in an updated second edition by OUP as an Oxford India Perennial.
PROF. O P Mathur
Prof. Mathur is Vice-President and Distinguished Professor of Urban Economics National Institute New Delhi. He is truly one of the pioneer thinkers of urban economy & has drafted policies and authored many research papers and books that form the backbone of contemporary urban planning in India. He has chaired several committees, participated in Planning Commissions. Currently Prof. Mathur is researching Fiscal Federalism, Decentralization and Local Government Finance and continuing with his path-breaking work on Infrastructure Financing of Urban Poverty Reduction Strategies.
MS. ADITI NAYAR Ms. Aditi Nayar is Assistant Vice President of ICRA Limited. She holds a BA in Economics and Psychology from Indiana University, Bloomington (USA), and an M.Phil in Economics from University of Oxford (UK).
Ms. Nayar has an aggregate work experience of eight years out of which she has been associated with ICRA for six years, focusing on macroeconomic and fiscal issues. She has been involved in the rating exercises of several sub-sovereign entities, including State Governments, State-level enterprises and Urban Local Bodies. Prior to working with ICRA, Ms. Nayar was a research
analyst with the World Bank.
MR. SHAMEEK RAY Mr. Shameek Ray heads a team of investment bankers at ICICI Securities Primary Dealership which structures and executes debt funding for corporate in Indian Bond markets. He has fifteen years of experience working with institutional and corporate clients in debt markets. He has particular interest in the development of corporate bond markets and has regularly participated in institutional initiatives including the SEBI Corporate Bond and Securitisation Advisory Committee.
Mr. Ray is a MBA from IIM Bangalore and has also completed the CFA program of the CFA Institute USA.
MR. NAGARAJAN NARASIMHAN Mr. Nagarajan Narasimhan, Senior Director - Ratings, CRISIL Limited joined CRISIL in 2000 and is presently responsible for Corporate Ratings. In this role, he leads a team of analysts that rates large and mid-sized issuers in manufacturing and financial sectors. His
Page 34
key responsibilities include ensuring quality and consistency in ratings, managing client relationships, and formulating business strategies.
In his earlier role, Nagarajan has led the Industry Research vertical at CRISIL Research, involving a team of over 100 research analysts and associates who cover more than 50 sectors. This team supported the research needs of the financial and corporate sector clients through research reports and customised assignments.
He holds a B.Tech degree in Mechanical Engineering from Kakatiya University, Warangal, and an MMS in Finance from Narsee Monjee Institute of Management Studies, Mumbai University.
MR. MADAN SABNAVIS Mr. Madan Sabnavis is a post graduate in economics from Delhi School of Economics, and graduated in Economics Honors from St Stephen’s College Delhi University. He has 27 years of experience as corporate Economist and worked in the Economic Department of erstwhile ICICI Limited for 12 years, as chief Economist of ICICI Bank for 3 years, Chief Economist Larsen and Toubro for 2 years, Chief Economist and Head Knowledge Management, NCDEX Limited for 6 years and now with CARE Ratings as Chief Economist for 3 years.
In CARE, he is responsible for the sub-sovereign ratings, which includes ratings of state governments and urban local bodies, besides the conduct of economic research.
He is also an author of 2 books: Macroeconomics Demystified and Eco Quirks. He has also authored over 1500 articles on various economics subjects since 1988 in newspapers such as financial express, economic times, business standard, Hindustan times and mint besides e-newspaper firstpost.com. He does book reviews for Business World and Financial Express. All his publications since 2007 can be viewed on blogpsot: www. madansabnavis.blogspot.com
In course of career he has been Chairman and Co-Chairman of Economic Committee of Bombay Chamber of Commerce for 5 years, and Co-Chairperson of IMC’s Economic and business committee.
MR. ANANTA BARUA
Mr. Barua has been with the Securities and Exchange Board of India (SEBI) since 1992 till date as Executive Director, Securities and Exchange Board of India (SEBI). He is currently holding charge of the Investment Management Department – Division of Funds, Debt Markets, Alternative Investment Funds (AIF), Portfolio Management Schemes (PMS), Investment Advisory Services, Mutual Funds, Foreign Institutional Investors and Custodians (FIIC), Collective Investment Schemes (CIS), Parliamentary Affairs and Regional Offices.
Mr. Barua has been associated with various responsibilities including the development of policy, framing of regulations on securities market. He is also associated with developing the regulatory framework governing the capital market in India (SEBI-1992-2011) and Bahrain Monetary Agency (BMA), Kingdom of Bahrain (BMA/CBB-2004-2006).
Mr. Barua is a member of various committees such as;
• Member of Working Group on Retail Structured Products under IOSCO Task Force on Unregulated Markets and Products (TFUMP) from 09.03.2012.
Page 35
• OECD Corporate Governance Committee for in-depth peer reviews of the United State, Korea, Netherlands and Indonesia on compliance with OECD Principles of Corporate Governance, relating to board nomination and election & discussion on Competitive Neutrality and Public Enforcement.
• Chairman of Working Group to suggest measures for promoting RMBS and other alternative capital market instruments such as Covered Bonds etc. constituted by National Housing Bank on 4th.July 2011.
Prior to joining SEBI in 1992, Mr. Barua worked with the Industrial Finance Corporation of India from 1990. Mr. Barua holds Bachelor's degree in Commerce and a Bachelors degree in Law (LLB) both from the University of Delhi. He has also acquired a Diploma in Management from Delhi.
MR. ASHISH SABLE Mr. Ashish Sable is currently working as Sr. Vice President, Debt Capital Markets in SBI Capital Markets Ltd., a wholly owned Investment Banking subsidiary of SBI.
He is responsible for syndicating funds for corporate from institutional investors like banks, mutual funds, foreign institutional investors, insurance companies, etc. as well as from the public debt markets. The fund are raised for the corporate through various debt structures like credit enhanced bonds, structured obligations, securitized debt, bonds with fiscal benefits like capital gains
bonds/tax-free bonds, etc. In SBICAP, over the years he was associated with number of bond issuances aggregating over Rs.1,00,000 crores.
Earlier, as Vice President (Corporate Relations & Business Development) in SBI Capital Markets Ltd. he was responsible for procuring Investment Banking business from large Corporate clients like large Public Sector Undertakings (BPCL, HPCL, NALCO), Govt. bodies (like NHAI, IRFC, Nuclear Power Corporation), Municipal authorities, State utities and Private Sector Corporate entities (such as HINDALCO, L&T, Tata Motors, etc).
ICRA Limited
Importance of Credit RatingImportance of Credit Rating and Financial Management in Accessing Capital Markets
An Associate of Moody’s Investors Service
September 19, 2013Aditi Nayar‐ ICRA Limited
ICRA Limited
Rapidly Growing Cities and Rising Urban Population Fueling Need for Enhancing Urban Infrastructure
• 50% of rise in India’s population from 2001 to 2011 was in urban areas.
• Metropolitan cities with population >1 million rose from 35 in 2001 to 50 in 2011.
• Physical expansion of existing urban agglomerations redefining of existingPhysical expansion of existing urban agglomerations, redefining of existinghabitations as urban.
• However, coverage and standard of basic services provided by urban local bodies(ULBs) have not improved along with rapid growth in urban population base.
• Inadequate infrastructure raises costs of doing business, improvements required tocreate enabling environment for sustained economic growth.
Million Urban Population in India
An Associate of Moody’s Investors Service
217
295
377
600
0
100
200
300
400
500
600
700
1991 2001 2011 2030 (est)
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Need for Credit Rating and Financial Management
Reforms in JnNURM CitiesReforms in JnNURM Cities
September 19, 2013
Alok Shiromany,Team Leader Technical Cell
1
Team Leader, Technical Cell, JnNURM, MoUD
Outline
Need for Credit Rating
MoUD Initiative
Status of Credit Rating under JnNURM
Ground Issues
Municipal Finance AgendaMunicipal Finance Agenda
JnNURM- Municipal Financial Reforms
Page 48
Need for Credit Rating• Independent and credible evaluation of credit quality;
• Independent financial analysis of city finances;
• Benchmarking/Comparative analysis with other municipalentities - highlights strengths and weaknesses; andentities highlights strengths and weaknesses; and
• External credit assessment encourages financialdiscipline amongst rated cities.
Access to wider set of investors:
1. Increased accessibility to capital markets-helps investors inpricing the debt offer;
2. Increased marketability of debt issues by municipal entities;
3. Improved visibility-attracts international capital; and
4. Eases risk identification and diversification for investors.
MoUD Initiative
MoUD commissioned
4 agencies
Initial Ratings
• January 2008- February 2011;
• Initial credit rating exercise completed for 65cities (8 UIG cities not rated; UA cities
• CRISIL
• FITCH
• ICRA
CARE
cities (8 UIG cities not rated; UA citiesincluded).
Surveillance Rating
• January 2010-February 2012;
• Surveillance rating undertaken for 62 ULBs.
• CARE Ratings
• Ratings are generally live for 12-15 months from thedate on which rating is assigned;
• 36 ULBs have received investment graderating (BBB- and above).
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Status of Credit Rating under JnNURMRating Category No of Cities Cities
Investment GradeAAA Nil AA 4 Greater Mumbai, Navi Mumbai, New Delhi Municipal
Corporation, SuratAA- 6 Delhi, Hyderabad, Nashik, Pune, Thane , Pimpri-Chinchwad, y , , , , pA+ 3 Ahmedabad, Chandigarh, KolkataA 4 Kalyan-Dombivili, Nagpur, Vadodara, VishakhapatnamA- 3 Mira-Bhayandar, Rajkot , Vijayawada
BBB+ 5 Chennai, Coimbatore, Jaipur, Madurai, MysoreBBB 4 Bhubaneswar, Indore, Panaji , RaipurBBB- 7 Ajmer, Bhopal, Dehradun, Faridabad, Kochi, Ludhiana,
TrivandrumNon-Investment Grade
36
BB+ 5 Amritsar, Jabalpur, Kanpur, Kulgaon-Badlapur , NandedBB 7 Asansol, Guwahati, Ujjain, Shimla, Lucknow, Meerut,
PuducherryBB- 6 Agartala, Agra, Howrah, Jammu, Ranchi , SrinagarB+ 4 Allahabad, Haridwar, Shillong, VaranasiB 5 Bengaluru, Bodhgaya, Jamshedpur, Kohima , MathuraB- 1 ImphalC 1 Puri
29
Ground Issues
Though empowered by the Constitution, Cities are not self reliant
Depend on grants from Central/State Governments, (grants are reducing)
G h i lk S i h l • Guwahati, Kolkata, Srinagar, Mysore, Bhopal, Agra
Cities lack financial viability and internal accruals are insufficient (Bengaluru, Nagpur, Srinagar)
Generating Less Revenue
Low equilibrium
ULBs’ revenue sources inadequately capture the economic buoyancy in the local area - leading to overall weak credit
worthiness (Bengaluru, Bhubaneswar, Faridabad)
Spending less on
Infrastructure
Less Infrastructure
Facility
Low equilibrium cycle
(Faridabad, Kolkata)
Absence of exchange relationship between taxes levied and services, large capital expenditure on non-
revenue generating projects - leading to under investment and
deteriorating service levels (Bengaluru, Kolkata, etc.)
Inadequate infrastructure in cities; cities unable to meet
rising demand for services and unable to raise resources
(Kolkata, Jabalpur, Srinanagar)
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Municipal Finance Agenda (1/3)
Resources are available in the capital market and FIs:
o Essential to expand the investment envelope by mobilizing long-term debt financing from the financial markets;
d h ll f d f f b l io Need to increase the overall funding for infrastructure by leveraging varied sources against one another; and
o Improved credit-worthiness shall help create interface between capital market/FIs and municipal finance.
Need for Capital Investment Planning and better Financial Management.
Need to develop bankable projects and leverage from market:Need to develop bankable projects and leverage from market:
o Develop a commercially viable projects with detailed engineering, costing, procurement plan, etc.; and
o Attempt reducing capital cost through appropriate credit enhancement measures to facilitate leveraging.
Municipal Finance Agenda (2/3)
Need for better expenditure management like –
o Reduction in non-revenue water;
o Appropriate costing of services and better targeting of subsidies;
R ti li ti d o Revenue rationalization; and
o Asset management helping mobilize resources - translating to better services .
Urgent need for improving revenue mobilization/ innovative use of assets:
o Considerable scope for increasing revenue especially from property tax ;
o Levy Development Charges;y p g ;
o Non-tax sources such as use of land monetization may be used; and
o Commercial utilization of land/property through PPP.
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Municipal Finance Agenda (3/3)
There is an urgent need for supplementing institutional capacity by capacity building measures
Several JnNURM reforms, such as accounting reforms, propertytax system user charges on basic services and reengineering and
Timely progress in the implementation of reforms under JnNURM such as the
I t d ti f l b d ti t
tax system, user charges on basic services and reengineering andcomputerization (e-Governance) of key municipal functions areimportant initiatives that will help enable the local bodies toaccess the capital market.
o Introduction of an accrual based accounting system;
oSelf-assessment of property tax;
o100% cost recovery of key urban services;
oPublic private participation; and
o Implementation of e-Governance.
Municipal Accounting
Accrual 32
Preparation of State Municipal Accounting Manual
Manual Approval & Adoption by the Local Body
State Accounting
Manual21States
based DEAS3
ULBsListing the Assets and Liabilities at ULB level
Valuation of Assets
Preparation of Opening Balance Sheet
Assists in accountability & transparency;
Better financial management helpsdecision-making;
Balance Sheet
Migration to DEAS
Appointment of Audit Officers/CA/Cadre
Necessary to raise finance from themarket, banks & FIs thus improvedinfrastructure availability; and
Assists in policy formulation, e.g., taxrates, service charges, etc.
Page 52
Property Tax
85% 42
Notification/Amendment of Act on Collection of Property Tax
Extending of property tax to all properties
85% Coverage
42ULBs
Posting of tax details in the public domain & migration to standardized self-assessment system of property taxation on the basis of periodic revisions and review of rates
Setting up non-discretionary method for determination of property tax (unit area method or
90% Collection efficiency
29ULBs property tax (unit area method or
capital value method)
Coverage (85%)
Collection Efficiency (90%)
efficiency ULBs
User Charges
Formulate & Adopt a Policy on User Charges
Separate Accounting System for User
Collecting more than 50% O&M Cost
recovery in Water Supply
40ULBs
Separate Accounting System for User Charges –(Water Supply )
Separate Accounting System for User Charges- (Solid Waste)-
Collection O&M Charges (WS)
Collection O&M Charges (SWM)
Collecting more than 50% O&M Cost
recovery in SWM
23ULBs
Page 53
Thank You
Slide 13
Key steps of the Strategy
Standard financial statements reportingformats be followedformats be followed
Appropriate Accounting Standards should be developed
Capacity of municipal finance officials to be upgraded
Page 54
ICRA Limited
Huge Financing Requirement as compared to Existing Sources of Funding poses a Challenge
• Urban infrastructure financing requirement large:
– 12th Plan capital expenditure projected by HPEC at Rs. 3.9 trillion.
– Works out to annual average per capita spending of ~Rs, 2,100.
• Municipal finances weak: Per capita revenue base of municipal bodies low at Rs.1,430 in 2007‐08.
• State Government support:
– SFC mandated/formula based transfers uneven across States.
– Regularity of transfers crucial.
• Government of India support:
An Associate of Moody’s Investors Service
– Notwithstanding sharp rise, grants recommended by 13th Finance Commissionsmall as compared to capex requirements.
– Budgetary provision for JNNURM‐1 over 7 years.
• Public private partnership (PPP) initiatives.
• Debt from Banks and Financial Institutions.
• Bond issues: stand‐alone or pooled.
ICRA Limited
Accessing Capital Markets Critical to Meet Funding Requirement
• Diversification of sources of funds.
• Structure can entail long repayment period, suitable for infrastructure projects.
• Flexibility to enhance credit quality of proposed issuance through appropriatestructuring.
• Opening up to market scrutiny, which in turn should strengthen ULB’s managementinformation system (MIS) capabilities.
• Ability of even smaller ULBs to raise funds through pooled issuances
An Associate of Moody’s Investors Service
Ability of even smaller ULBs to raise funds through pooled issuances.
Page 55
ICRA Limited
Obtaining a Credit Rating is a Prerequisite for Raising Funds through Bonds
• SEBI regulations require proposed bond issuances that are to be listed, to be ratedby a credit rating agency (CRA) registered with SEBI.
A Credit Rating is a simple and easy to understand symbolic indicator of theopinion of a credit rating agency about the risk involved in a borrowingprogramme of an issuer with reference to the capability of the issuer to repay thedebt as per terms of the issue.
This is neither a general‐purpose evaluation of the entity nor a recommendationto buy, hold or sell a debt instrument.
An Associate of Moody’s Investors Service
– Ratings are assigned on a scale from AAA to D.
– Suffix + or ‐ may be used with the rating symbol to indicate the comparativeposition of instrument within group covered by the symbol.
– Ratings of BBB‐ and above considered investment grade.
ICRA Limited
Long‐Term Rating Scale and Definitions
[ICRA]AAA Instruments with this rating are considered to have the highest degree of safetyregarding timely servicing of financial obligations. Such instruments carry lowestcredit risk.
[ICRA]AA Instruments with this rating are considered to have high degree of safety regardingtimely servicing of financial obligations Such instruments carry very low credit risktimely servicing of financial obligations. Such instruments carry very low credit risk.
[ICRA]A Instruments with this rating are considered to have adequate degree of safetyregarding timely servicing of financial obligations. Such instruments carry lowcredit risk.
[ICRA]BBB Instruments with this rating are considered to have moderate degree of safetyregarding timely servicing of financial obligations. Such instruments carrymoderate credit risk.
[ICRA]BB Instruments with this rating are considered to have moderate risk of default
An Associate of Moody’s Investors Service
[ICRA]BB Instruments with this rating are considered to have moderate risk of defaultregarding timely servicing of financial obligations.
[ICRA]B Instruments with this rating are considered to have high risk of default regardingtimely servicing of financial obligations.
[ICRA]C Instruments with this rating are considered to have very high risk of defaultregarding timely servicing of financial obligations.
[ICRA]D Instruments with this rating are in default or are expected to be in default soon.
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ICRA Limited
Credit Rating: Independent Opinion on Relative Ranking of Credit Risk, Incorporating Strengths and Weaknesses
• Advantages for Investors:
– Simple, objective indicator of relative fundamental position.
O i i b d l ti ll i– Opinion based on an analytically rigorous process.
• Advantages for Issuers:
– Wider access to capital.
– Unbiased feedback from an independent agency.
– Overall, prepares ULB for market scrutiny.
R ti b id th i f ti t b t th l d d b
An Associate of Moody’s Investors Service
• Ratings bridge the information asymmetry between the lender and borrower:
– Low familiarity of capital markets with ULBs given limited number of issuancesso far.
– Lack of scientific approach in budgeting and weak accounting systems of ULBs.
– Monitoring of ratings over the life of the instrument.
ICRA Limited
Criteria for ULB Ratings
• Legal and administrative framework.
• Inter‐Governmental fiscal relationshipInter‐Governmental fiscal relationship.
• Service area characteristics ‐ economic and social profile.
• Level of service provision.
• Management quality, systems & controls.
• Municipal finances.
• Future cash flow adequacy including project risk
An Associate of Moody’s Investors Service
Future cash flow adequacy including project risk.
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ICRA Limited
ICRA’s Recent Experience with Rating ULBs under JNNURM
• Assigned Issuer Ratings to 15 ULBs under JNNURM.
ICRA’s Issuer Ratings provide an opinion on the general creditworthiness of therated entities in relation to their senior unsecured obligations ICRA’s Issuerrated entities in relation to their senior unsecured obligations. ICRA s Issuerratings are not specific to any particular debt instrument issued by the ratedentities.
• Concentration of ratings in moderate‐credit‐quality bracket, with almost 60% ofULBs rated under JNNURM having an investment grade credit profile (Issuer Ratingof IrBBB‐ and above).
• However, ULBs covered by JNNURM are of high strategic importance, with
An Associate of Moody’s Investors Service
relatively favourable service area characteristics.
• It is likely that Corporations in many other Indian cities would have a somewhatweaker credit profile.
ICRA Limited
Credit Enhancements can Assist in Obtaining a Better Credit Rating
• Guarantee/Partial Guarantee from Bilateral/Multilateral Agencies and FinancialInstitutions.
• Letter of Commitment/Undertaking (typically from State Government) to meetShortfalls in Debt Servicing.
• Pre‐default Structured Payment Mechanism with Escrow Account, on whichTrustee/Lenders have exclusive charge.
• Bond Service Fund: Upfront cash collateral, interest accrued usually kept exclusivelyfor debt servicing.
An Associate of Moody’s Investors Service
• Pooled Finance: Joint mobilization of funds by a number of relatively small ULBs byissuing bonds. The bonds can be further credit enhanced by way of aguarantee, cash collateral or a combination of different credit enhancements.
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ICRA Limited
Improving Financial Management is Crucial to Boost Confidence of Market Participants
• ICRA's experience shows that transaction recording, efficient MIS andbudgeting/forecasting are among major vulnerabilities of ULBs.
• The importance of sound and efficient financial management can not be over‐emphasized:
– For better allocation of scarce resources to enable efficient service provision.
– For estimation of costs of services, so that appropriate level of user charges canbe imposed.
– This in turn would enhance revenue surpluses that can be invested inaugmenting urban infrastructure and also used to service debt.
An Associate of Moody’s Investors Service
• Timely dissemination of appropriate information is critical.
• Evidence of sound financial management would instill greater confidence of marketparticipants...
• … paving the way for greater penetration of capital markets by ULBs.
11
ICRA Limited
THANK YOU
An Associate of Moody’s Investors Service12
Page 59
Improving access to capital markets to Municipals:Role of credit rating
‐ Madan SabnavisChief Economist, CARE Ratings
1
The ULB Conundrum
Demand for funds is high
‐Rate of urbanization increased: 31%‐Will add 200 mn by 2031‐Migration contributes 20%Investment of up to Rs 70 lkh cr over 20g
Supply of funds constrained
‐Investment of up to Rs 70 lkh cr over 20 years
‐Revenue earned is almost fixed and low at 2‐3% of combined revenue of government‐ Substantial support from Governments‐ O&M expenses high, new development
2
p g , prestricted
… result is it that cities and towns go on with existing infrastructure
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How is the financing being done?
Institutional finance ‐Being pursued by some ULBs‐ Absence of too many viable such projects‐Constraints on collateral
Bond finance
‐Not widely used‐Only 28 issuances since 1997, none since 2010‐Rs 3000 cr so far, most private placements ‐Usually linked to user charges in water and sewerage services
‐ JNNURM
3
… Limits to which this equilibrium can prevail
Funding from above
‐ JNNURM‐Normally 50‐70% grant‐Several incomplete projects
Why don’t ULBs borrow?
Motivation
‐Use existing sources of funds ‐ Rely on support from the governments‐Use institutional finance to an extent
Creditworthiness
‐Perceived to be risky ‐Need credit enhancements like guarantees ‐ Accounting systems not always in order‐ Often linked with the status of respective state government
‐ Not in habit of raising money and hence cut out from market
4
… all this has combined to keep the market stunted
Absence of experience
cut out from market‐ Investors too not aware of such options‐Credit history unavailable, risk perception high
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JNNURM and credit rating culture
Unbiased external assessment
‐Future cash flows‐Current state of finances‐Debt ratios and debt service‐Other qualitative parameters
Tracking of progress
‐Other qualitative parameters
‐Issuer rating and surveillance helps audit regularly‐Enhances efficiency in collections ‐Enhances creditworthiness of ULB‐Signals when to access market
‐Governance and accountability‐ Improvement in accounting practices
5
… there is value in continuous monitoring of the state of ULBs through rating surveillance systems…must be forced to borrow in market as FRBM will put a limit
Change in mindsets
‐ Improvement in accounting practices‐ Better management practices‐ Collection and maintenance of data
Getting in the bond culture
Conditional finance from government
‐Link grants with raising of resources either through ‘own revenue’ or borrowings‐ Governments will not be able to provide funds‐ULBs will be forced to increase collections/use charges
Make Bonds attractive to investors
charges
‐Tax benefits necessary to get retail participation‐Provide guarantees to bonds for enhancement‐Make them SLR bonds
‐ Given tenure of these bonds, insurance,
6
… ULBs should first stand on own legs, and aim to work like corporate entities in next decade
Get in more buyers pension funds would have interest
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Thank you
7
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E i f ULB i S i G d Experience of ULBs in Securing Good Rating in Accessing Bond Market
Mr Rahul JoshiPresented By:
Municipal Bond Financing in IndiaTraditionally financed through mix of:
o budgetary allocations from Municipality’s own revenueso budgetary allocations from Municipality s own revenueso grants from state governmento borrowing from insurance companies and specialized national level institutions like HUDCO and state level
financial institutionso limited borrowings from banks/FIs
Access to capital markets commenced in 1998 with Ahmedabad Municipal Corporation (AMC) issuing the firstmunicipal bond in India without a state government guarantee. It was also the first public issue of municipal bonds.
Encourages several ULBs to explore credit ratings for accessing the debt capital market. Only a few manage to securecredit ratings acceptable to investors and even fewer issue municipal bonds.
As of 2008, total value of municipal bonds - Rs 1250 crore
The experience of the early issuers like AMC and Vishakhapatnam Municipal Corporation (VMC) assumes importancefor understanding the municipal bond markets in India even today.
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City Projects Amount (Rs. Million)
Municipal Bonds in India
y j ( )Bangalore (1997)* City road / drainage projects 1,250
Ahmedabad (1998)* Water supply & Sanitation projects 1,000
Ludhiana (1999)* Water supply & Sanitation projects 100
Nagpur (2001)* Water supply & Sanitation projects 500
Nashik (1999)* Water supply & Sanitation projects 1,000
Indore (2000)* City road projects 100
Madurai (2001)* City road projects 300
Ahmedabad Municipal Corporation (2002)
Water supply & sewerage projects 1,000
Nashik Municipal Corporation (2002)
Underground sewerage scheme & storm-water drainage projects
500
* Taxable Issues
City Projects Amount (Rs Million)
Municipal Bonds in India
City Projects Amount (Rs. Million)Hyderabad Municipal Corporation (2003) Road construction & widening projects 825
Hyderabad Metropolitan Water Supply and Sewerage Board (2003)
Drinking water projects 500
Chennai Metropolitan Water Supply & Sewerage Board (2003)
Water supply projects 420
Visakhapatnam Municipal Corporation (2004)*
Water supply projects 200( )
Visakhapatnam Municipal Corporation (2004)
Water supply projects 500
Ahmedabad Municipal Corporation (2004) Water supply, storm-water drainage, road & bridges and flyovers projects
580
Chennai Metropolitan Water Supply & Sewerage Board (2005)
Water supply projects 500
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Cit P j t A t (R Milli )
Municipal Bonds in India
City Projects Amount (Rs. Million)Chennai Municipal Corporation (2005) Road projects 458
Ahmedabad Municipal Corporation (2005) Road & Water supply projects 1,000
Nagpur Municipal Corporation (2007) Water supply & Sewerage projects 212
TNUDF – Pooled Issue (2003) Water and Sanitation projects 304
Karnataka Water and Sanitation Pooled Fund (2005)
Greater Bangalore Water Supply & Sewerage Project 1,000( )
TNUDF-Pooled Issue (2008) Tamil Nadu TownsWater Supply and Sewerage 65
The Ahmedabad Experience
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Key Terms Of January, 1998 Issue
The Ahmedabad Experience
Key Terms Of January, 1998 Issue
Issue Size : Rs 100 crore
Purpose : To part finance Water and Sewerage projects of Rs 489 crore
Interest : 14% p.a. (G-Sec yield 13.35%)
Tenor : 7 years
Redemption : At end of 5, 6 and 7th yearsRedemption : At end of 5, 6 and 7th years
Security :o First mortgage and charge on corporations property subject to minimum 1.25 times covero Structured Payment Mechanism by way of Escrow
Listing : National Stock Exchange
Credit Rating: CRISIL AA(SO)
CRISIL AA(SO) rating secured because:
The Ahmedabad Experience
o In 1996-97, 80% of total revenues comprised Octroi and Property Tax, grants were less than 10%:o Octroi: 56% of total revenues (11.5% p.a. Rate of Growth)o Property Tax: 24% of total revenues (15% p.a. Rate of Growth)
o Reform of Property Tax was underway – groundwork for move to unit area method of assessment from ARVmethod was being laid
o Revenue surpluses had been rising for the last three yearso Revenue surpluses had been rising for the last three years
o AMC had a well defined vision regarding future provision of civic amenities backed by a well defined capitalinvestment plan for water, sewerage, roads and street lighting (TCE, AIC Watson). It had also fleshed out indetail the financing plan for its investment plan with the assistance of US Aid, IL&FS and national andinternational experts.
o The senior management of AMC was highly motivated, market savvy and technically competent.
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The Ahmedabad Experience
o Bombay Provincial Municipal Corporation Act, 1949 allowed creation of mortgage on AMC propertyy p p , g g p p yincluding commercial property as well as escrow of all taxes, duties and cess
o Credit enhancement through escrow of Octroi revenues from 10 collection points. Prioritized municipal cashflows in favor of bond holder debt service. Monies went directly to no-lien ‘Designated Interest Account’ and‘Designated Principal Account’ rather than the municipal general fund.
Subsequent issues in 2002 – 9% p.a. (AA(SO), Rs 100 cr), 2004 – 6.4% p.a.a (AA(SO), Rs 58 cr) and 2005 – 6%p.a. (AA(SO), Rs 100 cr) had tenors of 10 years each and were privately placed. They were also credit enhancedp ( ( ), ) y p y p ythrough escrow of a mix of Octroi and Property Tax revenues. The collections in the escrow accounts were distributedpari-passu amongst existing and new bonds.
To curb growth of revenue expenditure concerted efforts to reduce establishment and administrative expendituresfrom 2003, resulted in their reduction from 72% of total revenues in FY 02-03 to 52% in FY 06-07.
The Ahmedabad Experience
Frequent issuances of municipal bonds has had the following salutary effects:q p g y
o AMC has successfully implemented reforms in Property Tax, e-governance applications and double entryaccrual based accounting.
o AMC management has gained considerable experience in project execution, treasury management andgeneral administration since the issue of the first bond.
This has further strengthened the confidence amongst investors that AMC’s bonds have low credit risk and allowedAMC to use bonds as a means to bridge its capital investment financing gap in any given year.g p g g p y g y
Capacity development at AMC has been supported by institution building by the state in the form of GSFS Capital &Securities Ltd., acting as an intermediary to facilitate market access by ULBs and state government entities. GSFSCaps has been the lead arranger for the subsequent three issues.
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The Ahmedabad Experience
Retail investors consciously targeted in first bond issue toInvestor Class Issue encourage residence to participate in city development. 5196subscribers of which12 are financial institutions.
1998 issue underwritten to the extent of 25% - the retail publicsubscribers part.
Public issue route discarded subsequently because of high cost
Second bond issue – 15 subscribers. Attracted public and privatesector corporates The third issue was entirely subscribed by five
I II III IV
Public Sector Banks √ √ √ √
Private Sector Banks √ √
Foreign Banks √
Insurance Co. √ √sector corporates. The third issue was entirely subscribed by fivepublic sector banks.
The fourth issue was limited to five banks and one insurancecompany.
AMC had an impeccable debt servicing track record:-o First issue: fully redeemedo Second and Third issues: prepaid.
Mutual Funds √
Public Sector Undertakings √
Private Sector Companies √
Individuals √ √
The Ahmedabad Experience
Lessons Learnt
Rating agencies look at:
Economic Parameters – nature of economic base and its growth prospects;
Financial Parameters – large, stable own revenue base, high tax and user charge collection efficiencies, lowgrowing revenue expenditures which are significantly less than revenues, low debt and good debtmanagement practices, capital expenditures which are predictable with a proper financing strategy ;
Service Delivery and Managerial Assessment Parameters – infrastructure availability, capital investmenttrends, reform track records;
Legal and Administrative Framework – taxing powers, borrowing powers, including, ability to charge assetsand cash flows, functional domain.
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The Ahmedabad Experience
Lessons Learnt
The key parameters influencing ratings are: Financial Performance and Service Delivery and Managerial Assessment
Also, conceptualizing and detailing an investment plan and its financing as well as reviewing municipal accounts andpractices to present them in a SEBI format are time consuming affairs hence, a ULB going in for its first bond issueneeds to provide sufficient time for the same. For instance, it took AMC 22 months from the date of the first resolutionof AMC’s Standing Committee (March 3, 1996) to the date of issue opening (January 16, 1998) to bring out its firstbond issue.
The Vishakhapatnam Experience
Page 79
The Vishakhapatnam Experience –Issue at a Glance
1) The minimum trading lot to trade through the Wholesale Debt Segment of The National
Stock Exchange of India mechanism is Rs. 10 Lakhs and multiples of 10 thereafter.2) The trading in these Bonds would be allowed only in 'demat' form.
The Vishakhapatnam Experience
The bond was issued to part finance the Rs 100 crore Godavari Drinking Water Supply Scheme. The AA-(SO) ratingp g pp y ( ) gby CARE was influenced by several factors, the prime being:
o In 2002-03, 71% of total revenues comprised Property Tax, Other taxes and Water Charges. grants wereless than 20%:
Property Tax: 17% of total revenues (15% p.a. Rate of Growth)Water Charges: 32% of total revenues (14% p.a. Rate of Growth) with metering and increase in watercharges in the offing.
o Negligible outstanding debt (Rs. 9.73 crore from LIC) with repayment liability assumed by Government ofAndhra Pradesh.
o Positive and growing revenue surpluses over the last four years
o VMC had a well defined water supply project detailed in a DPR for which tendering was underway. It hadalso fleshed out in detail the financing plan for it’s the water supply project with the assistance of IL&FS.
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The Vishakhapatnam Experience
o The Municipal Commissioner, Deputy Municipal Commissioner and the Mayor were positively inclined towards ap , p y p y p ybond issue with the Municipal Commissioner acting as champion.
o Vishakhapatnam Municipal Corporation Act, 1979 allowed creation of mortgage on VMC property includingthe water supply project assets being created as well as escrow of all taxes, duties and cess
o Credit enhancement through escrow of Property tax revenues and 30% of water charge revenuesaggregating to 27% of total revenues of VMC.
VMC also applied for tax-free status on its bonds in FY 03-04 from the Government of India, Ministry of Financethrough Ministry of Urban Development and Poverty Alleviation. It received tax-free status on only Rs 50 crore onthe total issue size of Rs 70 crore on December 29, 2003.
The delay in obtaining tax-free status meant that the bond issue was delayed till the fourth week of March, 2004.the delay resulted in only Rs 63 crore of the bond being placed with the entire shortfall being experienced in thetax-free bond category.
The Vishakhapatnam Experience
Lessons Learnt
The process of issuing a municipal bond is long drawn particularly for the first bond issue taking anywhere from 18-24 months from date of council resolution to the date of bond issue. Reasons are:
o Municipal accounts are on a single entry, cash basis. Also, very often they are in local language and need tobe translated into English which takes time.
o The account figures particularly cash balances do not tally from one year to the next for example, closingbalance of cash in previous year can be different from opening balance of cash in the current yearbalance of cash in previous year can be different from opening balance of cash in the current year.
o As there is no balance sheet, the outstanding debt picture has to be built from journal entries.o The capital investment plan and its financing need to be fleshed out in detail.o The process of getting approvals from state governments, central governments, in case of tax-free status, is
time consuming.o Appointing merchant bankers, bond trustees etc takes time.o Preparation of prospectus, credit rating and getting SEBI approval is also a time consuming process.
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The Vishakhapatnam Experience
Lessons Learnt
For instance, VMC embarked on the process on 7th Feb, 2003, GoAP approval was received on 20th March, 2003.However, tax-free status from MoF was received on 29th December, 2003 with MoUDPA approval on 12th January,2004. As a consequence the entire process of rating, appointing investment bankers, due diligence, SEBI approvaland listing agreements with NSE was squeezed into a period of 2 months.
Further, the short period of time left for expiry of the tax-free status meant that there was no flexibility in timing themarket to attract the maximum interest from investors looking for tax breaksmarket to attract the maximum interest from investors looking for tax breaks.
Recommendations
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Recommendations for ULBs Planning to Issue Bonds
Start the process early (18 – 20 months in advance) with the preparation of a CDP and a business plan based on it.
The business plan should have projects identified for investments and a preliminary financing plan.
Appoint a rating agency and show them the municipal accounts, investments undertaken and to be undertaken,projections if any.
o The ULB should consider municipal bonds only when its credit rating is at least A+ and Rs. 100 crore of capitalexpenditure in envisaged in the next 18 months (initial issue expenses get reduced as they are defrayed overa larger amount).
o Further it should consider municipal bonds only if it is confident that proceeds can be deployed to financeo Further, it should consider municipal bonds only if it is confident that proceeds can be deployed to financeproject expenditure within the next 18 months (otherwise negative interest arbitrage may ensue)
o AA-(SO) rating is possible for an A or A+ rated ULB provided it has stable and growing own revenue sources;is willing to ESCROW these stable resources; and provide tangible assets as security.
As far as possible municipality should obtain credit rating and approvals for issue of tax-free municipal bonds in theearly part of the financial year – gives sufficient time to place the issue under favorable market conditions and/orwhen large institutional investors are planning their tax investments for the fiscal year.
Recommendations for ULBs Planning to Issue Bonds
DPRs for projects identified for bond financing should be ready and recent.
Soon after appoint investment/merchant bankers as lead arrangers to prepare the offer document, do due diligence, facilitate SEBI Approvals, sourcing and appointment of trustees, bankers and registrars to the issue, facilitate in entering into listing agreements with NSE and other stock exchanges, assist in entering into dematagreements with NSDL/CDSL, undertake road shows and the entire placement process.
Availability of audited accounts for the last three years, projections, investment plans and financing strategies, credit rating and DPRs will greatly aid the arrangers in undertaking their due diligence exercise and complying with SEBI and stock exchange disclosure regulations and stock exchange disclosure regulations.
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Thank youThank you
Page 84
NAGPUR EXPERIENCE ON ACCESSING BOND MARKET
S. S. HASTAKNMC, Nagpur
19th September 2013
Name of the Bonds : Municipal Bonds
Purpose of Raising Bonds : Nagpur Water Supply Scheme Pench‐III,
Part‐I
Issue of Bonds : Rs. 100.00 Crores
D f R i i B d J 2001Date of Raising Bonds : January 2001
Rate of interest : 13% (P.A.)
Repayment period : 7year
Amount raised : Rs. 50 Crores
Actual Subscription of Bonds : Rs. 31.12 Crores
Interest Payment : Half YearlyInterest Payment : Half Yearly
Trustee Bank : Bank of Maharashtra, NMC Civil Lines
Branch, Nagpur
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Consultant : M/s Artefact Software Ltd., NagpurRegistrar and Coordinator : Vidharba Holding Corporation, NagpurSole Arranger : SBI Caps. LimitedRating agency : M/s ICRA Ltd. MumbaiCredit Rating of NMC : `AA` ( June 1999)Repayment Position : Fully repaid by N M CRepayment Position : Fully repaid by N.M.C.Principal Repayment / Redemption :
Premature Repayment : Nagpur Municipal Corporation made
At 5th year 30% Rs. 9.34 Crores 31.03.2006At 6th year 30% Rs. 9.34 Crores 31.03.2007At 7th year 40% Rs. 14.44 Crores 31.03.2008
Total Rs. 36.12 Croresp y gp p p
`Pre‐maturely` repayment of MunicipalBonds of Rs. 24.12 Crores out of total Bond Rs. 31.12 Crores because of High rate of interest of MPL Bonds.
Name of the Bonds : Tax Free Municipal Bonds
Purpose of Raising Bonds : Augmentation of Nagpur Water Supply
Schemes Pench‐IV
Issue of Bonds : Rs. 128.30 Crores
Date of Raising Bonds : March 2007
Rate of interest : 7.75% (P.A.)
Repayment period : 7year
Amount raised : Rs. 50 Crores
Actual Subscription of Bonds : Rs. 21.70 Crores
Interest Payment : Half Yearly
Trustee Bank : Bank of Maharashtra, NMC Civil Lines
Branch, Nagpur
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Registrar and Transfer Agent : M/s Mennen Financial Services Ltd.
Mumbai
Sole Arranger : SBI Caps. Limited
Rating agency : M/s Fitch Rating India Pvt. Ltd.
Credit Rating of NMC : `AA` (Feb 2007)Credit Rating of NMC : AA (Feb. 2007)
Repayment Position : Regular repayment by NMC
Principal Repayment / Redemption :
At 5th year 30% Rs. 6.51 Crores 31.03.2012At 6th year 30% Rs. 6.51 Crores 31.03.2013At 7th year 40% Rs. 8.68 Crores 31.03.2014
T t l R 21 70 CTotal Rs. 21.70 Crores
Experience :
Experience of Raising of Tax Free Municipal bonds by NMC was not encouraging owing to following:
1. Poor response from subscribes/ investors for making investment in Municipal Bondsinvestment in Municipal Bonds
2. Absence of guarantee of State Govt. for repayment of MPL Bonds
3. Low trend of revenue increase in ULB
4. Lack of aggressive marketing
5. Absence of relationship of trustp
6. Lower rate of interest available in capital market
Page 87
Raising of loan through Nationalized Bank
• In 2010, ULB raised a loan of 200 Crores through nationalized banks for meeting its 30% share under JNNURM projects.
• Repayment period 7 years• Rate of interest 8.5% ‐9.5%• Financial Management through escrow mechanisms• Daily transfer of 20Lakhs from ULB revenue to the escrow
account• Bank allowed 19 months moratorium period in which ULB p
required to pay interest only• Loan amount availed as per the requirement of releasing
payment to the agencies
Page 88
Fund raising through Municipal BondsInvestors response to constraints in issuing municipal bonds
A presentation by SBI Capital Markets Ltd.
September 19, 2013
Overview of Municipal Bond Markets
FLOW OF PRESENTATION
Overview of Municipal Bond Markets
Profile of Target Investors
Constraints
d
2
Suggested Actions
SBICAP Credentials
Page 89
Overview of Municipal Bond Market
3
Municipal Bond Market
• Since 1997, 25 municipal bond issues have been issued in India. These include taxable and tax‐
free bonds and pooled financing issues raising around Rs. 1400 crores
• All Municipal Bonds issued by ULBs have been more in nature of general obligation bonds,
Market Scenario
financed by escrowing property tax or other internal ULB revenues
• Municipal Bonds in India have been raised to finance water supply, sewerage projects and road
projects. This is because user charges in such infrastructure projects are easier to enforce.
• Strong Municipal Corporation can access market directly, whereas small & medium ULBs are
likely to remain alienated from capital markets due to ‐Weaker financial profileInadequate infrastructure agreementsLack of commercial viable projects
4
Typical Urban Funding methods
• User Charges/Municipal Taxes
• Grants from Governments
• Private participation
• Monetization of land
• Borrowings from the debt markets
Funding in India
• ULB’s (Urban Local Bodies) internal accruals
• Soft loans and Government grants
• Credit available from HUDCO & LIC
• Limited borrowings from banks/FIs
• Bond markets
Page 90
Parameters for bond issuance
Project development
Framework for bond issuance Process of bond issuance
• Identifying viable projects
• Means of finance
• Approval for raising funds from the market
• Structuring of debt issuance
Project appraisal, structuring and credit
rating of project
Working with the State Government and MoUDfor obtaining credit
enhancement
Structure of Bond issuance and
Appointment of External Agencies
Project implementation, timely repayments to bond
holders and post‐project monitoring
• Obtaining third party credit enhancement for the
debt instrument
• Obtaining approvals for fiscal benefits, if any
• Appointment of external agencies including project
monitoring agencies, bond trustees, etc.
• Pre‐marketing with prospective institutional
investors
• Issue opening for subscription
• Post issue formalitiesenhancement External Agencies • Post issue formalities
• Creation of security
External Agencies
• Panel of independent experts/agencies• Merchant bankers and related service providers• Credit rating agencies• Legal services
Instrument Structure Long term (10-15 years) with fixed coupon Bonds are issued in dmat form to facilitate secondary market activity
S d ith th Fi d A t
Typical features of bonds
SecuritySecured with the Fixed Assets Security is monitored by Bond TrusteesCreation of charge over fixed assets
ListingListed on Stock Exchanges Compliance with Listing Agreement Periodical disclosures
Credit Rating Debt instrument is rated based on cash-flows Rating can be improved based on credit enhancement
External Agencies Trustees to the bondholders Registrars to the issue
6
Page 91
Target Investors and their profile
Aggregate bond issuances have crossed Rs.3,00,000 crores in FY13.While Central PSUs continued their strong presence through large issuances, the share ofprivate sector issuers has increased significantly over the past few years.With increasing number of investors and limited number of high rated issues, appetite hasmoved from AAA to AA‐ over the last three years.
20%5%
Likely Appetite for Muni Bonds
Insurance
moved from AAA to AA over the last three years.Insurance companies and PFs/Pensions are major investors for providing long terminvestment for infrastructure sectorMost of the fund raising is offered through private placement targeted at institutionalinvestors
AA7%
AA‐5%
A5%
BBB or below2%
25%
35%15%
20% Companies
PF/Pension Funds
Banks
Non‐institutional
7Retail/HNI/Non‐institutional investors are mainly targeted through public issuance mode.
AAA64%
AA+17%
Structure of Municipal Corp
• Incorporation
Regulatory framework
• Scope of Municipal Bonds
Challenges for bond issuance
p
• Overlapping Jurisdiction• Security creation• Enforceability • Guidelines for floating SPVs• Financial Autonomy
p p
• Disclosure Standards • Listing guidelines • Grievance redressal• Borrowings from the debt
markets
8
Page 92
REGULATORY FRAMEWORK
SEBI definition of “issuer”
Eligible for Listing
SEBI Regulations
As per SEBI debt regulations 2008, issuer is defined as a i. Company ii. Statutory Corporation
Company Statutory Corporation
Public Sector Undertaking
Eligible for Listing
Options forIssuance
iii. PSU Hence, as per these regulations, debt securities issued only by the entities enlisted above can be listed on the exchange.
Options for issuance of NCDi. Listing approval from SEBIa) Approach SEBI for getting a Listing approvalb) Listed Bonds are well accepted with all investor classes.c) Disclosure norms to be followed as per Listing
Agreement.
9
Approach regulator for
getting “Listing” Approval
Issuance through a Company
Unlisted Issuance
ii. Issuance through a Companya) Well accepted with all investor classes.b) No separate approvals required from the regulator.
iii. Unlisted Issuancea) Market for Unlisted Bonds is quite limited and shallowb) Pricing and structure will depend on single/few investorsc) Disclosure norms are not applicable
Investors concerns & suggestions No Parameter Issues Suggestions
1 Framework • Incorporation • Standard framework across India• Corporate Municipal Entity• Project Specific SPVs• Empowering Cities‐ Empowered p g p
city governments are financially independent
2 Security creation • Power to create security • Adequate assets for
creation of security
• Create a bankruptcy code that would provide comfort to potential investors
3 Credit worthiness • Tax bases have remained narrow, inflexible and lack buoyancy.
• Identifying commercially viable projects
• Identifying/Escrowing credible • Not being to levy user
charges for services to cover operations, maintenance and depreciation costs
• Financial Profile of State Government
cash‐flows • Gap funding • Credit enhancement from third
party institutions• Projects on a PPP basis
10
Page 93
Investors concerns & suggestions
No Parameter Particulars Suggestions
3 Disclosurerequirements
• Financial reporting as per SEBI guidelines
• Periodical audited financial
• Standard accounting systems• Suitable disclosure norms for
Municipal Corporations statements
• On‐going disclosure requirements for listed bond issuance
4 Project Monitoring • Regulations permit only body corporates to issue securities
• Ensuring financial discipline • Specific end use • Project Monitoring Agencies
5 Bonds with • Pension Funds and Insurance • Additional Fiscal benefits fiscal/other benefits companies are major
investors in long term bonds • Through fiscal benefits,
possible to target large non‐institutional appetite form Muni bonds
under sections under IT for investment in Municipal Bonds
• Separate provisions under PFRDA/IRDA for investment in Muni Bonds
11
Municipality / Local Body
Year Rating Amount(Rs Crore)
Coupon(%)
10 year G‐Sec
Ahmedabad Jan, 1998 AA (SO) 100.00 14.00 13.3
Bangalore Nov, 1998 A (SO) 125.00 13.00 12.2
Ludhiana Sep 1999 LAA (SO) 17 80 14 00 11 6
Past Bond issues by Municipal Bonds
Ludhiana Sep, 1999 LAA (SO) 17.80 14.00 11.6
Nasik May, 1999 AA (SO) 100.00 14.75 11.7
Bangalore Water Supply Bd.
Aug, 2000 Not Available 10.00 12.90 11.4
Kanpur Dec, 2000 LA+(SO) 50.00 13.50 10.9
Madurai Mar, 2001 LA+(SO) 30.00 12.25 10.3
Ludhiana Jun, 2001 LAA‐(SO) 2.00 13.50 9.3
Tamil Nadu Urban Dev Fund
Aug, 2001 LAA+(SO) 106.10 11.85 8.9
12
Nagpur Nov, 2001 LAA‐(SO) 31.30 13.00 7.8
Ahmedabad Mar, 2002 AA+(SO) 100.00 9.00 7.4
Hyderabad* Mar, 2002 AA+(SO) 82.50 8.50 7.4
Chennai* Mar, 2005 AA (SO) 30.15 5.38 6.6
Nagpur* Mar, 2007 AA (SO) 21.70 7.75 8.0
Vishakhapatnam Sep, 2010 AA‐ (SO) 30.00 9.50 7.9
* Tax Free Bonds
Page 94
Highlights of a few Municipal Bond Issues• Escrow of Octroi• Inability to implement security structure led to rating downgrade ‐subsequently restored
Nashik
AA (SO)
• Escrow of non‐tax revenues like water chargesLudhiana
• Escrow of non‐tax revenues like water charges LAA (SO)
• Combination of escrow and cash collateral• Replicable model for corporations with substantial revenue surpluses
Hyderabad
AA+ (SO)
• Guaranteed by State Government• Non‐utilisation of proceeds resulted in negative carry on bond interest
Bangalore
A+(SO)
13
• Credit enhancement by GoTN Guarantee• Escrow of Toll collections on Madurai Inner Ring Road
Madurai
LA+(SO)
• Escrow of Octroi from 10 collection pointAhmedabad AA(SO)
To conclude..
• Municipal bonds have a potential in India
• Development of market would depend on –
– effective management their Municipal finances and adopting standard accounting practices
– Improved institutional arrangement between of state government and Municipal corporations
14
Most of the investor concerns are related to framework of Municipal Corporations and need to be addressed to create vibrant Municipal Bond Market in India.
Page 95
SBICAP Credentials
15
Jindal Saw Ltd. Air India Ltd.Deepak Fertilizers
and Petrochemicals
PHL Finance Pvt Ltd. Torrent Power Ltd
HDFC Ltd
INR 750 crs.
CREDENTIALS
INR 300 crs.Dec‐2012
Century Textiles and Industries Ltd.
INR 500 crs.Oct‐2012
Reliance CapitalINR 2000 crs.Jun ‐ 2013
SBI CardsBonds
INR 50 crs.Sept ‐ 2012
Adani Ports and Special Economic
ZoneINR 300 crs.Sept ‐2012
INR 7,400 crs.Nov‐2012
Petrochemicals INR 300 crs.Dec‐2012
INR 100 crs.Mar‐2013
Business Broadcasts News
Pvt Ltd.100 Cr
Jun ‐ 2013
INR 300 crs.Mar‐2013
INR 750 crs.Mar ‐ 2013
JSW Steel Ltd.
INR 1000 crs.Jun ‐ 2013
We have executed 38 private placement deals in FY13 aggregating to INR 56,741.28 crs
SBICAP is ranked 1st on the Prime Database League tables for number of issues handled in public Issues of debt for FY13
SBI Caps was mandated as a Lead Arranger for all the Tax‐Free Public Bond Issuances of FY2012 & FY2013 aggregating to a total of INR 90,000 Crs.
The only Indian investment bank to act as an arranger in Foreign Currency Bond Issuances.
16
Page 96
CREDENTIALS Municipal Bonds
Nagpur Municipal CorporationINR 31 crs.Nov 2001
Ahmedabad Municipal CorporationINR 105 crs.Jan 1998
Banglore Municipal CorporationINR 125 crs.Nov 1998
17
SBICAP successfully executed maiden Municipal Bond issue in the country
Thank You
18
Page 97
Status of Credit Rating of ULBs
Sr. No. Municipal Corporation Rating Rating Agency
1 Ahmedabad A+ CRISIL
2 Banglore B ICRA2 Banglore B ICRA
3 Bhopal BBB‐ India Ratings
4 Chandigarh A+ ICRA
5 Chennai BBB+ ICRA
6 Cochin BBB‐ ICRA
7 Delhi AA‐ India Ratings
8 Mumbai AA India Ratings
9 Hyderabad AA‐ CARE
10 Kalyan‐Dombivali A India Ratings
11 Kolkata A+ CRISIL
12 Mira Bhayander A‐ FITCH
19
Status of Credit Rating of ULBsSr. No. Municipal Corporation Rating Rating Agency
13 Mysore BBB+ ICRA
14 Nagpur A CRISIL
15 Nashik AA‐ CRISIL
16 Navi Mumbai AA India Ratings
17 New Delhi AA India Ratings
18 Pimpri Chinchwad AA‐ FITCH
19 Pune AA‐ India Ratings
20 Rajkot A‐ CRISIL
21 Surat AA CRISIL21 Surat AA CRISIL
22 Thane AA‐ India Ratings
23 Vadodara A CRISIL
24 Vijayawada A‐ CARE
25 Vishakhapattanam A CARE
20
Page 98
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