Ind-Ra assigns IND AA(SO) rating to UPPCL proposed bond

India Ratings and Research (Ind-Ra) today said it has assigned UP Power Corporation Limited's (UPPCL) proposed Rs 100 billion bonds a Provisional 'IND AA(SO)' rating with a stable outlook.
This is India's first state government revenue supported bond.
Noting that while state/central government supported bonds in the form of an unconditional and irrevocable guarantee are common, the rating agency said, "what makes this particular bond issue different from the bonds issued in the past is that in this case the entire state revenue is available for bond servicing."
As the quarterly debt servicing of the proposed bond is only a fraction of the Uttar Pradesh state government revenue, India Ratings said it believes this structure will provide confidence to investors and timely servicing of the debt.

Observing that the UPPCL bond also has other regular security features such as state guarantee and debt-service reserve account, the rating agency pointed out the innovative structure put in place to service the bonds has the potential to open a new and alternative funding line for state governments in India, besides also imposing fiscal discipline on the state governments.
Based on bond market yields and bank lending rates, Ind-Ra said it expects UPPCL to save interest cost of around Rs 2-2.5 billion annually.