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International Conference on Financing Muncipalities and Sub-National Governments, Washington October 1, 2004
Roopa Kudva
CRISIL Limited
Presentation flow
Introduction to CRISIL Credit Rating : Definition Urban Infrastructure in India A snapshot Benefits of Credit Rating of Urban Local bodies CRISIL Ratings for borrowing programmes of Urban Local bodies Credit enhancement mechanisms and illustration Conclusion
About CRISIL
First and the largest credit rating agency in India 4th Largest Rating Agency in the World Affiliation with Standard & Poors (USA) The first to rate a state government in India Gujarat The first municipal bond rating in Asia Ahmedabad Credit assessment of all the major state governments and more than 100 urban local bodies in the country. This also includes:
5 municipal corporations 2 Water and Sewerage Service providers
Census Year
1971 (actual) 1981 (actual) 1991 (actual) 2001 (actual) 2011 (projected)
CAGR Urban Population CAGR (millions) 109.11 159.46 217.61 285.34 377.12
2000-2005
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2000-2005
Internal sources
This necessitates the use of market borrowing for funding the urban infrastructure projects. Credit rating is vital for market borrowing
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Pool Financing
Smaller Urban local bodies aggregating to raise funds Useful for Urban local bodies with weaker credit profile as pooling leads to diversification of Risk
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Pool Financing
ULB 1
SPV
INVESTORS
Legend ULB 10
Structured Bonds Issue Proceeds Bonds Subscriptions Subsequent Repayments
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Conclusion
Significant need for capital expenditure
Growing population has intensified the need to improve the existing services
Limited funding support from traditional sources Already high level of state government guarantees The relatively low credit quality of many state governments restricts any meaningful credit enhancement
Increasing use of market borrowing as a funding option
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Conclusion
Most of the ULBs borrowing programme would necessarily require a credit enhancement due to their weak credit profiles Market discipline will have a beneficial impact on the reforming ULBs systems and process User charges would be rationalized to attain project viability
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Thank You
CRISIL Limited
Contact Details: Phone: +91 (22) 5691 3001- 09 Fax: +91 (22) 5691 3000 www.crisil.com
Annexure: CRISILs criteria for rating urban local bodies 1. Legal & Administrative Framework
Municipal functional domain as defined by the relevant act Decision making process State government transfers Tax rates & basis of assessment Borrowing powers & ability to pledge revenues State government & municipal linkages
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3. Municipal Finances
Accounting quality Overall surplus/deficit on revenue account Profile and trends in tax and non tax revenues Property tax effort: Demand raised, rates, systems, coll. eff. Dependence on SG transfers: Stability & transparency Expenditure profile: Head wise & activity wise Capital receipts and expenditures - Trends Debt profile: Cost, tenure, coverage Future sources of revenue growth Measures to curtail revenue expenditure
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4. Existing Operations
Range of services: obligatory/discretionary functions. Core services: Water, sewerage facilities, primary education & health, etc. Systems in place for delivery of these services Level and trend of past expenditure on these services. Proposed level of service enhancement Major projects undertaken
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5. Managerial Assessment
Linkage between financial health & initiatives taken by a proactive management. Organizational structure Administrative systems and procedures Project management skills Level of control on expenditure Initiatives taken to enhance resources and improve collection mechanisms
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6. Project Details
Proposed projects Project tenure and funding patterns Debt servicing requirements due to new projects Existing level of service & improvements envisaged
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