AT A time when several state governments have seen their ratings downgraded, the Karnataka government-guaranteed papers have been upgraded to A+ (so) (adequate safety with relatively higher standing within the category).
This puts Karnataka in the same league as Gujarat, which currently has the same implicit rating outstanding from Crisil.
It may be recalled that in the past one year or so, Crisil has downgraded the implicit ratings of two state governments: Orissa and Maharashtra twice.
Speaking to ET, Crisil’s head of infrastructure ratings, Sharad Jain said, “Karnataka has maintained fiscal prudence, as is reflected in its low deficit levels, debt to revenue receipts ratio and higher interest coverage levels, as compared to other states. Besides, Karnataka did not have to resort to ways and means advances from the Reserve Bank of India in the past three years.”
Crisil has upgraded the ratings assigned to eight bond issues, worth a total of Rs 2,479.2 crore, issued by Krishna Bhagya Jala Nigam from A (so) to A+ (so). The rating agency has also assigned an A+ (so) rating to a Rs 1,200-crore fresh bonds programme of the state government undertaking.
The ratings are based on the credit enhancement mechanism, in the form of an unconditional guarantee by the government of Karnataka, to meet the debt servicing obligations on the bonds and tripartite agreement between KBJNL, GoK and the trustees to the bondholders, facilitating timely payment of dues to bondholders.
KBJNL’s own revenues are not expected to be sufficient to meet its debt servicing obligations in the short to medium term.
The interest and principal repayments on the rated bonds are expected to be met through budgetary support provided by GoK to KBJNL.
Therefore, the ratings reflect the ability of GoK to service the debt obligations on the rated bonds, said a Crisil release.
The upgrade in KBJNL’s ratings is based on GoK’s sustained fiscal prudence leading to a consistently sound fiscal performance, as reflected in relatively lower revenue and fiscal deficits, low debt levels, high interest coverage and healthy liquidity position, as compared to other states.
The ratings are supported by a healthy growth in GoK’s revenues and outstanding tax effort, the release added. GoK’s relatively high per capita developmental expenditure is expected to lead to economic betterment in the medium term.
The increasing share of the tertiary sector in the state’s economic output has added stability to the state’s economy with a decline in dependence on the primary sector and a rise in per capita income levels, said Crisil.
KBJNL acts as a financing and implementing agency for the completion of Upper Krishna Projects in the state of Karnataka. The UKP was envisaged to tap the potential of the Krishna Basin for the purpose of irrigation and generation of hydro-electric power.
KBJNL is the nodal agency for the completion of the unfinished irrigation projects in the state in order to meet the Bachawat award, which addresses the issue of water sharing between the states of Karnataka, Andhra Pradesh and Maharashtra, the release said.