With Mangalore Urban Development Authority (MUDA) due for a review of its credit rating, it seems unlikely that it will shake off the “bad investment and likely to default on loans” tag it received last time around.
ICRA (formerly Investment Information and Credit Rating Agency of India Limited), which assesses the risks, performance and capabilities of a company in repaying loans, had assigned the ‘D’ rating, which is the lowest of the category, to MUDA for long-term loans during its audit done in March 2012. The agency explains the rating as companies that “are in default or are expected to be in default soon.”
The Reserve Bank of India regulations dictate that companies must get rated every 15 months. “A review is to be done soon, but the data has not come in full. A new rating will be calculated within the end of the year. Until then, financiers will consider this rating,” said Jayanta Chatterjee, Relationship Manager for ICRA.
On the importance of the rating, Mr. Chatterjee said banks and financiers checked the ratings before giving loans. “If the rating is bad, financiers may increase interest rates to cut risk,” he said.
However, as an officer in the accounts department of MUDA told The Hindu , nothing much has changed since the last audit, and there is a possibility a ‘D’ might show up in its report card again.
In its 2012 rating, MUDA suffered as it missed due dates on the Rs. 137.44 crore loans taken. Rs. 11.95 crore was still outstanding when the rating was given. “The cash flows do not match obligations,” said Mr. Chatterjee. While, the public sector enterprise posted a loss of Rs. 19 lakh in 2010-11, it had meagre profits of Rs. 1 lakh and Rs. 2 lakh in the two years before that.
‘No effect’
The MUDA officer said the low rating had no effect on the company as “no fresh loans” were taken in the financial year or will be taken any time soon. “We missed deadlines for repayment. However, now, we have paid back some part of the loans. No new projects had been started in the past two years and so there was little expenditure,” said the officer.
However, the problems with the cash flow remain. Land purchase, development, a series of litigation, land acquisition problems, and increasing costs has seen projects delayed. “Because of this, the layout is incomplete and we have little revenue. We got low ratings last time because we missed out on repaying,” he said.
Keeping this in mind, MUDA, which had taken loans to start a 200-acre residential layout, with 3,695 sites, has sent a proposal to the government to expedite the process. “Until the proposal comes through, none of the parameters for a higher rating will come into effect,” sai the officer
