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Over Rs 50K cr of muni bonds may be on offer soon as 26 cities get ready to hit mkt

Following Pune Municipal Corporation’s (PMC) Rs 200 crore municipal bond offering that hit the BSE on June 22, as many as 26 cities with A+ and above credit rating are planning to raise over Rs 50,000 crore over the next three years, say ministry sources.

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Following Pune Municipal Corporation’s (PMC) Rs 200 crore municipal bond offering that hit the BSE on June 22, as many as 26 cities with A+ and above credit rating are planning to raise over Rs 50,000 crore over the next three years, say ministry sources.

The Pune Municipal Corporation (PMC) bond issue received subscriptions worth nearly Rs 1,200 crore. Investors were major banks, insurance companies, mutual funds and pension funds. The bonds offered 7.59 percent interest.

So far, cities that have received the highest rating include Kolkata in West Bengal (AAA); Navi Mumbai (AA+), Pimpri Chinchwad (AA+), Pune (AA+), Nashik (AA), Mira Bhayandan (AA-), Thane (AA-), Vasai-Virar city (A-) in Maharashtra; GVMC (AA) and Vijaywada (A-) in Andhra Pradesh; Ahmedabad (AA), Surat (AA-) and Vodadra (A+) in Gujarat; NDMC (AA-) in Delhi; Kishangarh (A+), Jaipur (A-), Bhiwadi (A-), Jhunjhunu (A) in Rajasthan; GHMC (A+), Warangal (A) in Telangana; Indore (A+), Bhopal (A-) and Jabalpur (A-) in Madhya Pradesh; Lucknow (A-) in Uttar Pradesh and Mangaluru (A) in Karnataka.

Fifteen cities in the list have already appointed transactional advisers, say ministry sources. These include Jaipur, Jabalpur, Ahmedabad, Visakhapatnam, Indore, NDMC, Kakinada, Udaipur, Bhopal, Warangal, Kota, Bhiwadi, Kishangarh, Greater Hyderabad Municipal Corporation (GHMC) and Panaji, sources say.

PMC has earned a long-term credit rating of AA+ indicating a stable outlook. It is the second-largest corporation in Maharashtra that earns the bulk of its revenues from property taxes and local body taxes. PMC plans to use the municipal bonds funds for a 24X7 water supply project for the city, as it attempts to meet its Smart Cities mission.

As per reports, since the last two decades, close to 30 municipalities have raised a total of Rs 1,353 crore via taxable bonds, tax-free bonds and pooled financing. The largest of the offerings has been Bangalore Municipal Corporation’s Rs 125-crore bond issue in 1997 which was guaranteed by the state government.

For Ahmedabad, this would be the fifth time the city’s civic body is hitting the bond market. Its first offering was for Rs 100 crore, without a state government guarantee, in January 1998.

Other cities which have taken the capital market route through municipal bonds (without guarantee) include Nashik, Nagpur, Ludhiana, and Madurai. The proceeds have mostly been used to fund water and sewage schemes or road projects.

New Delhi Municipal Corporation (NDMC) is likely to float municipal bonds for around Rs 200 crore shortly. “We are currently working on the statutory compliances,” say sources in NDMC.

NDMC has a credit rating of AA+. NDMC derives its income from four main sources: sale of electricity, income from municipal works, property taxes and charges from sale of water. “The municipal body plans to use the funds to bring about efficiencies in the infrastructure system,” they say.

Surat municipality is also planning to take the municipal bonds route. “It is at an initial stage. The process of consultation is currently on. The amount raised will go into drinking-water project that will cost around Rs 450 crore,” says M Thennarasan, Municipal Commissioner, Surat Municipal Corporation.

Greater Visakhapatnam Municipal Corporation (GVMC) is also planning to take the municipal bond route. “We are currently in the initial stages of planning and are in the process of preparing a detailed project report for construction of an underground drainage project which is likely to cost around Rs 650 crore. Only about Rs 200 crore is likely to be raised through municipal bonds,” say sources in the GVMC.

GVMC had accessed the capital markets through municipal bonds (without guarantee) in 2010 to raise Rs 30 crore.

Ratings ranging from AAA to D will help determine how these cities, which are part of the Smart Cities Mission and Atal Mission for Rejuvenation and Urban Transformation (AMRUT), raise money and on what terms.

Ratings for 317 out of 436 smart cities have been completed so far. As many as 180 cities that have been given lower ratings have been given the option to go in for a credit enhancement plan. This is a six-month plan under which these cities can adopt remedial measures to upgrade their ratings and eventually float municipal bonds. “Once these cities decide to float municipal bonds, the amount raised through this instrument may surpass Rs 50,000 crore over the next three years,” ministry sources say.

These municipal bonds have so far been guaranteed by the government as it has decided to pay tax on the interest component of these bonds, they say. 


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