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Uncertainty of Amaravati Bonds

by Seo Manager
828 views Hyderabad

In his vision to actualise people’s capital of Amaravati, the Chandrababu Naidu Government issued Amaravati bonds to raise funds for the capital city. The AP Capital Region Development Authority (APCRDA) floated bonds, which witnessed a record 1.53 times oversubscription, enabling it to mobilise Rs 2,000 crore of funds. 

The bonds were issued at a coupon rate of 10.32% payable quarterly and the 10-year bond had a 5-year lock-in on principal part after which, 20% of the principal will be redeemed every year for coming five years, but have different maturities ending in the year 2024, 2025, 2026, 2027 and 2028. Franklin Templeton Mutual Fund holds about Rs 979 crore and Aditya Birla Mutual Funds hold Rs 226.5 cr worth of bonds amounting to a total of Rs 1200 crore. 

On 21 November 2019, Acuité Ratings & Research downgraded the long term rating on these 2,000-crore unsecured non-convertible debentures of APCRDA. Then on 31 December 2019, Brickwork Ratings revised its outlook to negative for APCRDA. And on 29 January 2020, CRISIL placed its rating on the bonds as ‘Rating Watch with Negative Implications’. The rating on APCRDA’s bonds derived its strength from a well-defined payment structure including the Government guarantee and sustenance of debt service reserve account, but any change in the payment structure may have material implications on the rating.

In its maiden budget, the YSRCP Government reduced the budgetary allocation to the Amaravati capital city project and brought it down to a meagre Rs 500 crores. Furthermore, the Government in its pursuit of vendetta scrapped multiple investments in and around the city. However, this was not all, as the Government announced its irrational plan of having three capitals in the State. These moves severed a deathly blow to the Amaravati bonds floated by APCRDA thus, leading to a rating downgrade by most agencies.

The lack of vision and economic understanding on the part of Jagan Mohan Reddy has dented the credibility of the State and scared most investors away while threatening the investments made by others.

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