Fin min source says 8 municipal bodies look to tap bond market by July
Informist, Tuesday, Dec 19, 2023
By Krity Ambey
NEW DELHI – The civic bodies in eight Indian cities, including Varanasi, Kanpur, and Nashik, are likely to tap the corporate bond market by July to issue municipal bonds, a finance ministry official told Informist. Municipal agencies of Prayagraj, Vizag, Ahmedabad, Vadodara and Surat are also likely to tap the bond market by July, the official said.
"There is a lot of homework which has to be done to issue these (municipal) bonds. In the sense, they have to put their books in order to get credit rating. So they have started that process," the official said. "I am already in touch with 8-10 municipalities who are interested; they are working with merchant bankers as to how they can go about it."
Surat Municipal Corporation and Ahmedabad Municipal Corporation are rated 'AA+', Vadodara Municipal Corporation 'AA' and Nashik Municipal Corporation 'AA-' by CRISIL.
The urban local bodies are likely to raise about 1-2 bln rupees each through municipal bonds, the official said. The Ministry of Housing and Urban Affairs has a scheme under which it gives a 130-mln-rupee incentive for every 1 bln rupees raised through municipal bonds for up to a maximum of 2 bln rupees. "In order to utilise the scheme, most of the cities will come with a quantum between 100-200 crore (1-2 bln rupees)," the official said.
In September, Informist had reported that Ahmedabad, Vadodara and Surat may tap the corporate bond market during Oct-Nov with green bonds maturing in five years.
So far in the current financial year started April, only Pimpri-Chinchwad Municipal Corporation has raised municipal bonds.
"Once more civic bodies issue these bonds, we will be able to discover what should be an ideal yield." Pimpri-Chinchwad had raised 2 bln rupees through 5-year municipal bonds in July at a semi-annual coupon of 8.15%.
The government has linked 50 bln rupees of the 1.3-trln-rupee, 50-year interest-free loans to states for capital expenditure to improve the creditworthiness of urban local bodies for issuance of municipal bonds.
The municipal bodies have been slow in tapping the debt market as they have to do lot of groundwork before they come to the market, the official said. "For municipal bonds, they have to put their books in order. Some of them were still not on double-entry accounting system."
Another issue is that most of these municipalities don't have big projects to fund, the official said. "If you look at institutional investors, for them 200 crore (2 bln rupees) is nothing, a very small amount," the official said. "Institutions like ADB (Asian Development Bank) and IFC (International Finance Corporation) are looking at bigger tranches. Our cities don't have those kind of projects, so there is mismatch."
The Securities and Exchange Board of India has been holding workshops to help civic bodies improve their creditworthiness and put their books in order, the official said. In fact, SEBI held a workshop on municipal bonds on Thursday in Chandigarh, the official said. End
