MC Exclusive| SBI Capital, Trust Investment, 2 others in race for merchant banking roles in Varanasi, Kanpur municipal bond issues

MC Exclusive| SBI Capital, Trust Investment, 2 others in race for merchant banking roles in Varanasi, Kanpur municipal bond issue, say sources

At least four companies, including SBI Capital Markets and Trust Investment Advisors, have submitted bids for merchant banking-cum-transaction advisor roles with Varanasi Nagar Nigam and Kanpur Municipal Corporations ahead of their proposed bond issues, according to two persons familiar with the development.

“Apart from these two merchant bankers, HDFC Bank and AK Capital Services are said to have submitted their bids,” one of the persons cited above told Moneycontrol on condition of anonymity.

Municipal bonds are issued by civic bodies to finance urban infrastructure projects. Merchant bankers act as intermediaries between issuers of stocks and bonds and investors. They take responsibility for the preparation of the sale prospectus and marketing.

“In the next few days the selection process of the merchant bankers will be concluded and after that issue structure will be made,” the other person cited above said.

Both corporations have invited bids to appoint merchant bankers-cum-transaction advisors for their municipal bond issues planned in the next few months.

The last date to submit their applications in the case of Varanasi Nagar Nigam was by April 21 up to 5 pm.

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In the case of the Kanpur Municipal Corporation, the deadline was set at 3.30 pm on April 11. An official from the corporation told Moneycontrol that they may extend the last date of bidding by one week to get responses from more merchant bankers.

Further, the officials from Kanpur Municipal Corporation said they may raise Rs 100 crore through the municipal bonds maturing in 10 years.

On April 13, Moneycontrol reported that three municipal corporations — Varanasi Nagar Nigam, Agra Municipal Corporation and Greater Chennai Corporation — plan to raise funds through municipal bond sales.

Prior to this, Prayagraj Municipal Corporation and Kanpur Municipal Corporation are planning to issue their first municipal bonds, Moneycontrol reported on April 5.

In the last 10 years, municipal corporations have raised over Rs 4,000 crore through municipal bond sales, market participants say.

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

On February 24, NSE’s index services subsidiary, NSE Indices Limited, launched India’s first municipal bond index, the 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 category.

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Concerns on requests for proposal

Multiple merchant bankers Moneycontrol spoke to raised some concerns on the requests for proposal (RFPs) floated by some corporations recently for the appointment of merchant bankers-cum-transaction advisors.

One merchant banker on condition of anonymity said the proposed RFP for all the municipal bodies is the same with a higher weightage in technical bid given experience in advisory roles than to the merchant banking experience.

“Quality- and cost-based selection was used by which 80 percent weightage was given to the technical bid and only 20 percent weightage was given to the financial bid. This undermines the whole theme of issuance of bonds where only those with the experience in advisory roles would benefit since technical qualification emphasises advisor experience more in ULBs (urban local bodies),” said another merchant banker.