Eyeing a bigger share: SBI Capital, SPA Capital emerge as leading arrangers in the municipal bonds market since 2013

Although Indore is the first to target individual/retail investors, municipal bonds have hit the street before but catering only to institutional investors.

SBI Capital Markets and SPA Capital Advisors have acted as arrangers or transaction advisors on a majority of the municipal bond issuances so far since 2013, according to a Moneycontrol analysis.

While a little over Rs 4,000 crore of 15 municipal bonds have been issued since 2013 , around 60 percent were arranged by these two firms.

What are municipal bonds? 

Municipal bonds are similar to corporate bonds, but they are issued by civic bodies to finance urban infrastructure projects. This market is very small and is marked by low volumes. Most such issues have a low outstanding amount, compared with other debt instruments.

Municipal corporations issue bonds to raise funds from individuals and institutions. The investors are promised a specific interest and return of the principal amount on the maturity date.

Also read: NSE Indices launches India’s first Municipal Bond Index

Out of the 15 issuances of municipal bonds, SPA Capital and SBI Capital turned out to be the arrangers to the issuer or transaction advisor for nine sales.

The analysis shows that SBI Capital was the arranger of six issuances and SPA Capital handled one of the total 15 issues.  SPA Capital was transaction advisor in five issuances and SBI capital in two issuances.

“SBI Capital markets has the credibility of being a subsidiary of State Bank of India (SBI). All government institutions prefer to mandate SBI Capital Markets on nomination basis,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincorp.

As the market develops, other Intermediaries including SPA, who have better reach and frequent interactions with such issuers, will also get a chance to receive mandates based on the past experience of advising them, Srinivasan added.

According to Prime Database data, Vadodara Municipal Corporation, Ghaziabad Nagar Nigam, Greater Hyderabad Municipal Corporation, Indore Municipal Corporation were among the civic bodies that sold municipal bonds since 2013.

Will these entities continue to dominate? 

Market participants are of the view that SBI Capital  will continue to receive more mandates based on nomination, being a public sector bank subsidiary, past experience, existing business relationships and brand value.

An official said on condition of anonymity that one of these firms was in talks with a few other municipal corporations for the issue of municipal bonds in the next financial year.

Also read: MC Explains: What are municipal bonds? All you need to know

“We do not expect any other municipal bond issuance in this fiscal, but next year there will be a few,” he added.

Government push 

In Budget 2023, Finance Minister Nirmala Sitharaman said the cities will be incentivised to improve their credit worthiness in order for them to issue municipal bonds.

Measures are being taken by the regulators to deepen the municipal bond market. Recently, the Reserve Bank of India (RBI) said listing municipal bonds in the stock exchanges can pave the way for developing a much-needed secondary market for municipal bonds in India.

NSE’s index services subsidiary, NSE Indices Limited on February 24 launched India’s first ever Municipal Bond Index, Nifty India Municipal Bond Index, at a Securities and Exchange Board of India workshop on Municipal Debt Securities in Bengaluru.

The index has 28 municipal bonds issued by 10 issuers all having a credit rating in the AA rating category.