Andhra Pradesh Power Finance Corporation defaults in debt servicing

Amid the Amtek Auto controversy, the state-run Andhra Pradesh Power Finance Corporation has defaulted in debt servicing on bonds worth Rs 3,100 crore while the sister states Andhra Pradesh and Telengana are at loggerheads over who will should be responsible for paying bond holders. 

The erstwhile power finance company of the united state government was bifurcated into Andhra Pradesh Power Finance Corporation and Telengana State Power Finance Corporation and both are in constant fight over distribution of assets and liabilities. 

"Despite our continuous effort, the Corporation does not remit the shortfall (in interest payment)," said State Bank of Hyderabad, which was the debenture trustee for the bond, in a letter to investors on September 19. A copy of the letter is in possession of ET. 

Crisil Ratings has downgraded the bonds by five notches to `D' from `A' on September 25, almost three weeks after the company defaulted; raising doubts over rating companies' ability to warn investors on time. It had earlier placed the ratings on "rating watch with developing implications." 

In case of the Amtek Auto imbroglio too, the role of rating companies in predicting crisis in advance was on question. 

"Through our ratings as well as rating rationales over the past year and a half, we have been highlighting to investors consistently about the need to watch the process of bifurcation of assets and liabilities between the corporations of two states, and all this while, the payment was always on time," said Crisil's chief analytical officer Pawan Agrawal. 

"The bonds carried a trustee-administered payment structure and in such cases, the role of a trustee becomes very important. In this case the trustee did not invoke the guarantee as envisaged in the structure. The trustee issued the letter indicating shortfall in debt servicing on September 19 and it reached us on September 22. We downgraded the bonds on September 25," said Agrawal. 

The company under the united Andhra Pradesh government raised a total of Rs 3100 crore in three separate bond issues in 2012. The company was supposed to pay Rs 151 crore of interest on these bonds while it had only paid Rs 87.7 crore, resulting a shortfall of Rs 63.3 crore. 

The bonds were guaranteed by the state government. 

The trustee said in the letter that it was in the process of initiating steps against the company to safeguard bond holders' interest.