Longer maturity debt to be part of Rs 25,000 crore green bonds plan

A wind turbine at the ReGen Powertech Pvt. farm in Dewas, Madhya Pradesh, India, on Friday, Sept. 9, 2022. Prime Minister Narendra Modi is pushing a 2070 net-zero goal, and his Power Minister, Raj Kumar Singh, has said the country will limit exports of credits to prioritize its own climate goals. Photographer: Aparna Jayakumar/Bloomberg

India may sell as much as 250 billion rupees ($3 billion) of green bonds in the next fiscal year and plans to include longer maturity debt to the offering, according to people familiar with the matter.

There is a demand for papers of 30- to 40-year tenor, particularly from insurance companies, to fund projects with a longer gestation period, the people said, asking not to be identified as the government is yet to take a final call.

India offered green bonds in five-year and 10-year tenors, totaling 160 billion rupees, in the current year that ends March 31. While the finance ministry has assumed green issuances at 1.6% of the overall borrowing of 15.43 trillion rupees next year, the officials said that the actual offering would depend on demand.

A finance ministry spokesperson did not immediately respond to an email and messages requesting for a comment.

India is the world’s third-biggest carbon polluter and green bonds are part of its plan to fund the transition from dirty fossil fuels to clean energy. It can help the government lower its borrowing costs, as seen in the last two auctions where the 10-year paper fetched a premium of about six basis points over the regular bond of same maturity.

Greenium

The finance ministry is expecting the ‘greenium’ to go up for longer tenors, while it is also discussing issuances in shorter maturities to get price discovery across the yield curve, the people said.

The yield differential versus conventional bonds reflects investors’ interest in financing India’s environmental projects as Prime Minister Narendra Modi aims to zero out greenhouse emissions by 2070. The lower borrowing costs could help the government as it prepares for another year of record debt sales to support economic growth.

The yield on 30-year government bond has fallen 38 basis points to 7.5% from its June high, while it dropped 18 basis points to 7.44% on the 10-year paper.

The next tranche of green bonds will likely come after September, but its broad contours may be discussed at a meeting with the Reserve Bank of India later this month to finalize the borrowing plan for first half of next fiscal, the people said.