After the Pune civic body successfully tapped the municipal bonds market to raise funds, the state government has found at least 19 more urban local bodies implementing urban rejuvenation schemes are immediately credit-worthy to raise funds from markets.
The state urban department recently got a credit rating done for all 43 civic bodies in Maharashtra that are implementing capital-intensive urban infrastructure projects under the central government’s flagship Atal Mission for Rejuvenation and Urban Transformation (AMRUT). Some of these cities are also implementing multi-crore projects under PM Narendra Modi’s pet Smart Cities Mission. Chief secretary Sumit Mullick said, “The state government wants to encourage more civic bodies to look at innovative ways of raising funds for their projects, such as by way of municipal bonds. This will also help us ease pressure on the state treasury.”
With a debt burden of Rs3.71 lakh crore, the Maharashtra government is battling an overall delicate financial situation, further pressurised by the government’s recent promise of granting a farm-loan waiver. As the state tightens its purse strings, and civic bodies cope with the introduction of GST that will replace all local levies such as octroi and the local body tax, tapping the municipal bonds market to raise funds for infrastructure projects may become a more common phenomenon.
Of the 43, the state government found that 20, including Pune, have an investment grade rating, which means that these municipal bonds will have a relatively low risk of default. Moreover, nineteen more have a rating that is just one level below investment grade. Rating agencies assign credit ratings based on the assets and liabilities of urban local bodies, their revenue streams, resources available for capital investments, and their accounting practices. As per guidelines of the Union Ministry of Urban Development, of the 20 ratings from AA to D, a rating of ‘BBB” or higher is considered to be an ‘investment grade’ rating.
{{/usCountry}}Of the 43, the state government found that 20, including Pune, have an investment grade rating, which means that these municipal bonds will have a relatively low risk of default. Moreover, nineteen more have a rating that is just one level below investment grade. Rating agencies assign credit ratings based on the assets and liabilities of urban local bodies, their revenue streams, resources available for capital investments, and their accounting practices. As per guidelines of the Union Ministry of Urban Development, of the 20 ratings from AA to D, a rating of ‘BBB” or higher is considered to be an ‘investment grade’ rating.
{{/usCountry}}A senior state government official said municipal corporations such as Thane, Nashik and Nagpur could be a few others that may raise funds for their projects via municipal bonds in the next two years. “We will have to phase out the municipal bonds as per the project on shelf. Also, as more municipal bonds across the country hit the market the enthusiasm surrounding them may not remain as strong as it was for the Pune bonds,” the official said.
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