The Ahmedabad and Vadodara Municipal Corporations plan to raise a combined Rs 300 crore through green municipal bonds in January, people aware of the development told Moneycontrol.
The Ahmedabad Municipal Corporation may raise Rs 150 crore to Rs 200 crore through the bonds maturing in five years, they said. The Vadodara Municipal Corporation will raise Rs 100 crore via five-year green bonds.
“Ahmedabad Municipal Corp has already filed the papers for the issue and Vadodara is expected to file this week,” one person said.
The bidding dates have not been decided and officials are in talks with merchant bankers and investors, the people said.
“The funds raised through these bonds will be utilised for green initiatives,” they added.
Municipal bonds are similar to corporate bonds, the only difference being that they are issued by civic bodies to finance urban infrastructure.
Municipal corporations raise funds from individuals and institutions. Investors are promised a specified interest and return of the principal amount on the maturity date. Such bonds are issued by states, cities, counties, utility providers, transit authorities, school districts and hospitals.
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Previous issuances
In 2023, the Pimpri Chinchwad Municipal Corporation raised Rs 200 crore through maiden municipal bonds maturing in five years. The corporation set an 8.15 percent coupon on the bonds.
The corporation said it would use the funds to develop the Mula river from Wakad Bypass to Sangvi Bridge under the Pune River Rejuvenation Project.
Prior to this, the Indore Municipal Corporation had listed its green bonds on the National Stock Exchange of India. The public issue got an overwhelming response with an overall subscription of 5.91 times the issue size.
According to Reserve Bank of India data, municipal corporations raised over Rs 4,000 crore through bond sales from 2011 to 2021.
Vadodara Municipal Corporation, Ghaziabad Nagar Nigam, Greater Hyderabad Municipal Corporation and Indore Municipal Corporation are among the civic bodies that have sold municipal bonds since 2013.
Budget announcement
In Budget 2023, finance minister Nirmala Sitharaman said cities will be incentivised to improve their creditworthiness so that they can issue municipal bonds.
Regulators are taking measures to deepen the municipal bond market. Recently, the RBI said listing municipal bonds on the stock exchanges can pave the way for developing a much-needed secondary market.
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Interest rates
Since the start of January, the yield on corporate bonds declined marginally following easing government bonds, market experts said.
In December, the yield on corporate bonds fell by about 10 basis points, tracking the yield on government securities and expectations of an easing monetary policy. The RBI paused its interest rate hikes in April last year, after raising it by 250 bps since May 2022.
Indian bond yields are likely to see a downward movement in 2024 due to expectations of rate cuts by the US Federal Reserve and inflows from foreign investors after the inclusion of government securities in JPMorgan’s Emerging Bond Index starting June 28, 2024.
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