Municipal corporations may issue bonds worth Rs 1000 cr in next 3 months

Indore announces green bond issuance for Rs 244 cr, amount raised will be used to set up solar power plant

At a time when the Finance Ministry and the Reserve Bank of India are looking to encourage municipal bodies to issue bonds, debt market sources said that around five to six such corporations may sell bonds worth around Rs 1,000 crore in three to four months.

“There are talks going on between arrangers and around five or six municipal bodies. There is renewed interest in this route for raising funds. We could see roughly Rs 1,000 crore worth of total issuances in the next three to four months,” a source said.

Indore Municipal Corporation said on Monday that it has filed an offer document for the public issuance of rated and listed green municipal bonds aggregating up to Rs 244 crore.

Indore’s green bonds, which have been rated AA+ by India Ratings and AA by Care Ratings, are in the form of four strips. The strip format of bond issuances includes separate transferable and redeemable principal parts.

The maturities of the separate portions are three years, five years, seven years and nine years. The coupon rate for Indore’s green bonds is 8.25 per cent payable half-yearly and an effective yield of 8.42 per cent annually.

The proceeds from Indore’s bond sale will be used for the installation of a 60 MW solar power plant in Khargone district of Madhya Pradesh.

With regulators taking note of the need for urban bodies to explore alternate financing routes, the total amount that municipal corporations have raised through the bond market has tripled since 2017.

Latest documents for regulatory filings by the Indore Municipal Corporation would mean that the total amount raised through the route will touch Rs 6,252 crore. This is 2.7 times the cumulative amount of Rs 2,342 crore raised as of 2017.

In the Union Budget for 2023-24, Finance Minister Nirmala Sitharaman said that cities would be incentivized to improve credit worthiness for municipal bonds through property tax governance reforms.

The RBI too has called for municipal bodies to tap the bond markets to a greater extent in order to meet capital expenditure growth.

“Overall experience indicates that the proceeds from municipal bonds in India have almost exclusively been used for capital expenditure and/or expansion of essential municipal services. Taking a cue from this, the bond financing route needs to be explored on a wider scale to meet the needed capex expansion plans of MCs in the years ahead,” the RBI said in its November 2022 report on municipal finances.

In 2018, the Indore Municipal Corporation became the first to list on the National Stock Exchange while Ghaiziabad’s corporation was the first to issue green bonds in India in 2021. Rates paid out to investors for buying municipal bonds are much higher than government bonds even as the municipal debt enjoys a degree of sovereign backing.

Under the Atal Mission for Rejuvenation and Urban Transformation Programme, the Centre provides financial incentives in the form of lump-sum grant-in-aid for municipal bond issuances at the rate of Rs 13 crore per Rs 100 crore of bonds.