MUMBAI, Dec 4: The Bangalore City Corporation (BCC) has obtained an A (SO) rating for its Rs 100 crore (Rs 1 billion) bond issue for funding its arterial road projects from CRISIL. The corporation is implementing the Banglore Mega City project and is going to incur significant capital expenditure in the future on this account. The single A structured obligation rating indicates adequate safety with regard to timely repayment of financial obligations on the bonds.

The rating is based on the support provided by the Government of Karantaka in the form of a guarantee and a tripartite agreement between the GoK, the BCC and the trustees to the bond holders. It further reflects a structural payment mechanism involving escrow of general revenues (property tax and other taxes) and government grants received by BCC.

``Crisil has assumed the above mentioned legal structure and repayment mechanism in its full content and spirit, for assessing this rating. Any variation, modification or alteration in this arrangement would require CRISIL to review the rating if considered necessary,'' said a Crisil statement.

Karnataka is financially one of the stronger and better managed states with an above average economic structure. Its major strengths are its natural resources, particularly minerals and its social and economic infrastructure.

In terms of the composition of the state domestic product, Karnataka is dependent on the primary and the tertiary sectors. GoK's dependence on central assistance for funds, has been increasing in the recent past, with an increased inflow of grants for centrally sponsored schemes which are discretionary in nature. However, the state did face a liquidity squeeze in 1996-97 due in bunching of expenditure at the financial year end.

The existing levels of debt is fairly within control. The government has undertaken various measures to boost revenues by rationalisation of taxes. The state has also made a beginning in adopting appropriate pricing for some of its economic services. The state has also made a beginning in adopting appropriate pricing for some of its economic services.

On the expenditure management front GoK has been able to keep the revenue expenditure in line with the revenue receipts resulting in low levels of revenue deficit. The finances of the BCC are not as buoyant as that of an octroi levying corporation.

However, the outlook for BCC's finances is positive in the medium term, as the corporation has recently undertaken steps to improve its property tax collections, both in terms of improving its collection efficiency and in the immediate reassessment of municipal properties in the city.

Future levels of SFC grants, which replace the octroi compensatory grant would determine the financial strength of the corporation and have an impact on the rating assigned to the corporation's bond issue. Additional resource mobilisation from commercial property development as well as improvement in property tax collections would be essential.

The reforms have been initiated by a forward looking management and hence future financial health would also depend to a great extent on the project management skills of the management.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.