APSFC bifurcation delay may result in bond repayment default

Delay in asset bifurcation of Andhra Pradesh State Financial Corporation (APSFC) could lead to default in bond repayments to the tune of Rs 6.41 billion, a senior analyst has said.

The rating of the bonds was also downgraded to 'B with negative outlook by India Ratings. A rating below 'BBB' is categorised as speculative grade.

"APSFC is witnessing tight liquidity condition and the major problem is delay in the bifurcation," India Rating (Ind-Ra) Senior Analyst Divya Shrivastava said.

The entity was to be bifurcated after Telangana was carved out of Andhra Pradesh.

APSFC's Telangana division is facing hurdles over non-resolution of asset division between the two states, and liquidity problems that have emerged since 2017, officials said.

"At the board level, the issue of bifurcation has been decided upon, but it is yet to get the Centre's nod," Shrivastava said.

Due to this, the bonds do not carry the usual state guarantee, too, she said.

Of the total Rs 6.41 billion, only Rs 1.21 billion is maturing on December 29, 2019 and the remaining in 2022 and 2023.

However, despite the rating downgrade, some analysts were of the view that APSFC will not default, as it is more of a "procedural" issue.

APSFC's core capital risk-weighted adequacy ratio has gradually increased since the 2013-14 fiscal (FY18: 24.21 per cent, FY17: 20.83 per cent), driven by growing net worth and robust bottomline.