Muni bonds to be rated soon

NEW DELHI: Urban local bodies and municipal corporations will now be rated by credit rating agencies such as Icra, Crisil and Fitch to help them in mobilising funds from the capital markets. Ratings of urban local bodies will help in determining the acceptance of their respective municipal bonds in the market.

The urban development ministry has taken the initiative to help urban local bodies in mobilising resources for undertaking various infrastructure projects, an official in the government said. The initiate is in line with UPA government’s flagship scheme, Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

“The rating agencies will access the creditworthiness of urban local bodies in 63 cities. Forty-four cities have signed memorandum of agreement (MoA) for carrying out reform agenda under the mission,” a senior Nirman Bhawan official said.

“Currently, urban local bodies can raise funds from banks and financial institutions, and the credit rating will enhance the process of securing such loans,” he added. Over 180 projects worth Rs 15,333 crore have been sanctioned for 36 cities under the JNNURM.

Since the launch of the mission in December 2005, 62 cities out of the 63 covered under the JNNURM have prepared comprehensive city development plans (CDP) charting out their proposals and goals in urban development. The CDPs also include city-based urban infrastructure services such as water supply, sanitation and solid waste management.

The mandatory credit rating will be an added benefit for urban local bodies, that have been allowed to raise tax-free municipal bonds in the market. According to the official, the credit rating of a particular urban local body will determine the acceptance of the bonds in the market. A ministry estimate says the municipalities immediately require Rs 28,500 crore to finance a shelf of basic projects. This is far more than the capacity of the local bodies to finance from their annual budgetary allocations.

The special purpose vehicles called state pooled finance corporations will enter the debt market to float tax-free municipal bonds. Since it will have funding support from both state and central governments, it will improve the creditworthiness of the municipalities, especially the smaller ones.

According to officials, before being rated by the agencies, a municipal body would have to set up a concrete investment plan and assess total financial viability of projects to be financed