Crisil downgrades Maharshtra to default category

India’s ‘most favoured investment destination’ Maharashtra is on the verge of a major financial collapse if the chilling warn...

India’s ‘most favoured investment destination’ Maharashtra is on the verge of a major financial collapse if the chilling warning by the top credit rating agency is any indication. For the first time, rating firm CRISIL downgraded Maharashtra government to default category ‘D’ (so) from ‘BB+’ (so) citing delays in payment of interest and principal obligations by state-owned irrigation corporations.

CRISIL said it has downgraded the ratings of seven bond programmes worth Rs 2,134 crore of Maharashtra Krishna Valley Development Corporation (MKVDC) and two bond issues worth Rs 308 crore of Vidarbha Irrigation Development Corporation (VIDC) from ‘‘BB+(SO)’’ to ‘‘D(So)’’ making it the worst-ever indictment of the State government’s sagging financial conditions. The default rating (D) on these corporations is tantamount to declaring the State government a defaulter.

‘The above bonds were structured ratings reflecting the support provided by the Government of Maharashtra through a tripartite arrangement between the bond issuers, Government of Maharashtra and the trustees to the bondholders. Neither the investors nor the trustees had invoked the guarantees that the Government of Maharashtra had provided,’ according to CRISIL. The Government had also indicated to CRISIL that it had put in place a mechanism to fund the concerned corporations prior to the interest and principal payment dates, regardless of notification from the trustees. However, the continued delays in debt servicing by MKVDC and VIDC indicate that the payment mechanisms needed further strengthening, it added.

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Reacting to the downgrade, a state government statement said that it does not agree with the CRISIL on the alleged delays in payment of interest and principal by irrigation SPVs. ‘We have verified and found out that all payments of Rs 213 crore have been fully made except in couple of rare cases where the payment has not been made due to reasons unrelated to availability of funds. The revised arrangement is working well. We reiterate that the state government has every intention of making all payments in respect of all bonds issued by the irrigation SPVs in full and in time,’ said the statement issued by the finance department.

Analysts say the problem in the State government’s finances was brewing for a long time which is bringing Maharastra on the verge of a financial ruin.