At a time when the Ministry of Finance and the Reserve Bank of India are seeking to encourage municipal bodies to issue bonds, sources in the debt market have said that about five to six of these companies could sell bonds of a worth about Rs 1,000 crore in three to four months.
“There are ongoing discussions between the arrangers and about five or six municipal authorities. There is a resurgence of interest in this way of fundraising. We could see around Rs 1,000 crore in total emissions over the next three to four months,” a source said.
Indore Municipal Corporation said on Monday that it had filed an offering document for the public issue of rated and listed green municipal bonds aggregating up to Rs 244 crore.
Indore’s green bonds, rated AA+ by India Ratings and AA by Care Ratings, come in the form of four strips. The strip format of bond issues includes separate principal transferable and redeemable portions.
The maturities of the separate tranches are three years, five years, seven years and nine years. The coupon rate for Indore’s green bonds is 8.25% payable semi-annually and an effective yield of 8.42% per annum.
The proceeds from the sale of Indore bonds will be used for the installation of a 60 MW solar power plant in Khargone district of Madhya Pradesh.
With regulators noting the need for city bodies to explore other avenues of funding, the total amount city corporations have raised in the bond market has tripled since 2017.
The latest documents for regulatory filings by the Indore Municipal Corporation would mean that the total amount collected via the road will hit Rs 6,252 crore. This is 2.7 times the cumulative amount of Rs 2,342 crore collected in 2017.
In the Union Budget for 2023-24, Finance Minister Nirmala Sitharaman said cities would be incentivized to improve the creditworthiness of municipal bonds through property tax governance reforms.
The RBI has also called on municipal bodies to further tap bond markets to meet growing capital spending.
“Overall experience indicates that municipal bond proceeds in India have been almost exclusively used for capital expenditure and/or expansion of essential municipal services. Taking inspiration from this, the path of bond finance needs to be explored on a larger scale to meet the necessary investment expansion plans of MCs in the coming years,” the RBI said in its November 2022 finance report. municipal.
In 2018, Indore Municipal Corporation became the first to be listed on the National Stock Exchange while Ghaiziabad Corporation was the first to issue green bonds in India in 2021. The rates paid to investors for the purchase of ‘Municipal bonds are much higher than government bonds, even though the municipal debt enjoys some degree of sovereign guarantee.
Under the Atal Mission Program for Urban Rejuvenation and Transformation, the Center offers financial incentives in the form of a lump sum grant for the issuance of municipal bonds at the rate of Rs 13 crore per Rs 100 crore d ‘obligations.
