AMC kept on minus watch by Crisil as Modi decides to repeal Octroi

New Delhi, June 8 (UNI) A leading rating agency has placed Ahmedabad Municipal Corporation (AMC) on negative watch list following decision of the Gujarat government to abolish octroi across all seven municipal corporations in the state from November 15, ahead of the coming Assembly elections.

Crisil has placed its outstanding 'AA(so)' rating on bonds issued by AMC on 'rating watch with negative implications,' the rating agency said in a statement.

AMC had issued Rs 100-crore tax-free bonds in 2002, Rs 58-crore tax-free bonds in 2004 and another tranche of Rs 100-crore tax-free bonds in 2005. All three bond issues have been rated AA(so) with negative implications, Crisil said.

The abolition of Octroi could adversely impact both the standalone rating of AMC and the credit enhancement provided to the rated bonds, since Octroi and property tax collections are escrowed as part of the payment structures, the rating agency said.

Annual octroi collection by civic bodies of Ahmedabad, Surat, Vadodara, Rajkot, Jamnagar, Bhavnagar and Junagadh amounts to Rs 1,800 crore. Largest municipal corporation in Gujarat, AMC covers an area of around 190.80 square kms, and provides a range of civic services to around 38 lakh people of Ahmedabad and peripheral areas that come under the municipal limits.

Crisil said Octroi contributed 62 per cent of AMC's revenue receipts in 2006-07, compared to 18 per cent contributed by property tax, and 15 per cent by user charges. It said AMC has a high share of committed expenditure (establishment and debt charges) of 55 per cent in its revenue expenditure, leaving little flexibility to cope with a potential diminution in its revenue. Added to this, AMC's debt levels are high at Rs 294 crore. '' Octroi abolition therefore has the potential to severely impact AMC's financial risk profile, by worsening its debt protection measures,'' the rating agency said.

However, Crisil said it will take a final view on the rating after evaluating the adequacy and efficacy of the compensatory mechanism to be announced by the Gujarat government for the civic bodies. It expected the package to be a combination of compensatory grants and alternative tax and non-tax revenue sources.

In 2005-06, AMC reported revenue receipts of Rs 902 crore and generated operating surplus and revenue surplus of 39 per cent and 30 per cent respectively. As on March 31, 2006, AMC's indebtedness, the ratio of its debt to its revenue receipts, was a high 45 per cent, the rating agency said.

UNI