MSRDC's bonds downgraded

The rating agency CARE has downgraded the rating for outstanding bonds (Rs 1,917 crore) of Maharashtra State Road Developments Corporation (MSRDC) from "BBB(SO)" to "BBB-(SO)".

The rating revision factors in MSRDC?s increasing losses, negative net worth of the company and increased dependence on GoM to meet its debt servicing obligations.

The rating however also factors in MSRDC's good debt servicing track record and efficiency in execution of mega road projects.

A majority of MSRDC's revenues come from the toll collections from the completed projects. It also receives a portion of cess collected on diesel and petrol in Mumbai, from the government of Maharashtra.

MSRDC was incorporated in August 1996, as a fully-owned undertaking of GoM, with the primary objective of constructing and maintaining roads and bridges, CARE said in a statement today.

Although MSRDC's operating income has shown a compounded annual growth of 16 per cent between FY 02 and FY 06, it continued to incur losses over the same period due to a substantial increase in the interest burden.

The corporation also posted a net loss of Rs 353 crore in FY06. Its net worth was a negative Rs 223 crore. The interest coverage has consistently been below unity between FY 02 and FY 06, which brings forth MSRDC's dependence on securitisation proceeds, borrowings or GoM support to service debt commitments.

MSRDC's weak financial position is also brought out by the erosion of its net worth indicating a need of recapitalisation by GoM. Meanwhile, the rating agency has also assigned a 'provisional' 'BBB - (SO)' to the proposed tax free bond issue of Rs 320 crore.