Crisil upgrades Maharashtra's ratings

The ratings were downgraded in October 2002 on MKVDC defaults

Rating agency Crisil today upgraded its ratings on bonds guaranteed by Maharashtra and Karnataka governments, citing improvement in the financial risk profiles of the two state governments.

The ratings of Maharashtra government guaranteed bonds have been revised to investment grade from speculative grade. The ratings were downgraded in October 2002 to speculative grade following delays in debt repayments by the Maharashtra Krishna Valley Development Corporation (MKVDC).

The rating of the Karnataka government guaranteed bonds have been upgraded to AA- from A+. Crisil had earlier upgraded Karnataka's ratings in August 2000. Maharashtra's ratings have been revised to BBB (stable) from D (speculative).

Crisil said the upgrade reflects the timely servicing, over the last twelve months, of all debt guaranteed by the Maharashtra government.

At present, the total outstanding debt of Maharashtra aggregated to Rs 94,000 crore, constituting 25 per cent of the state's gross domestic product (GDP). The outstanding debt of the state government-owned entities is 36 per cent of the GDP.

However, Crisil could not quantify the impact of the revised rating on the borrowing cost of Maharashtra as the state has not announced no plans to raise fresh capital.

The improvement in the financial risk profile of Maharashtra stems from the state's improved guarantee management, its resolve to avoid any defaults on its guaranteed borrowings and its proactive fiscal reform agenda.

Crisil attributed Karnataka's upgrade to the state's consistent pursuit of reform agenda, buoyancy in tax revenues backed by a strengthening of the state economy over the past six years.

In another exercise, Crisil has reaffirmed its ratings on state-owned entities of Andhra Pradesh to A, Gujarat BBB and Tamil Nadu A+.

According to Crisil's executive director and chief rating officer Roopa Kudva, "Good economic management and consistent adherence to reforms continues to be the central driver of Crisil ratings on state governments. Crisil believes that the credit profiles of rated state governments have the potential to improve from current levels, provided these state governments continue to demonstrate a commitment to fiscal prudence."

The credit rating agency also pointed out that these states have controlled their expenditure and displayed a renewed focus on reforms. The favourable economic environment in recent years, however, had a strong beneficial effect on these states' revenues.

Maharashtra's additional chief secretary (finance) O P Gehrotra said, "Maharashtra has a vibrant economy and this (rating upgrade) was bound to happen. This is just a beginning and the government is undertaking many steps for structural adjustment and disciplining state finances."