Now, Palike plans to float bonds to pool in resources

It ignored poor credit rating and presented inflated budget

Investment Information and Credit Rating Agency of India (ICRA) has placed the credit rating of the Palike at a moderate risk to high risk of defaulting on their financial obligations.

The ruling party in BBMP appears to have ignored the dismal credit ratings that the Palike received from ICRA, to present an inflated budget of Rs 9,000-odd crore for the City.

The rating of -BB shows that BBMP is placed at a moderate risk to high risk of defaulting on their ‘timely servicing of financial obligations’.   
Sources in the BBMP state that the dismal rating by ICRA for the Palike has not enthused financial institutions in lending the civic body the requisite financial support.

“The reasons for the dismal ratings can only be attributed to the fact that the Palike did not provide the requisite information on its financial capabilities to ICRA. Some resources and assets were not even revealed to the agency,” said a source in BBMP.

It is also justified by the BBMP authorities that the division of assets between the Bangalore Water Supply and Sewerage Board (BWSSB) and the Bangalore Metropolitan Transport Corporation (BMTC) has left the Palike without much to show for seeking a higher credit rating.

 “Despite having performed well in our financial management, second only to Ahmedabad Municipal Corporation in the country, we do not have the auxillary agencies under our purview to show better services to the people,” said the source.

The officials are, however, hopeful that the BBMP will invite the credit rating agency this year to rectify the damage that has been done to the Palike due to the poor credit rating.
Despite the poor credit rating, the BBMP is likely to float municipal bonds, by 2011-end, to pump in more funds to meet its expenditure.

According to officials, the BBMP is likely to seek approval from the State Government to float the bonds up to the tune of Rs 300 crore.

“We cannot seek permission to float bonds in excess of Rs 300 crore as they violate certain Income Tax regulations applicable to civic bodies,” said another source.

Officials state that the minimum sum that the BBMP intends to raise will be anywhere between Rs 100 to Rs 150 crore by roping in financial institutions and bankers.

What does -BB rating mean?

Ratings are given by ICRA to urban local bodies. BBMP has received -BB which falls between the below mentioned ratings

 -BB: Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations

 B: Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations.