Indore Municipal Corporation files for retail green bonds, aims to raise Rs 244 crore

Indore Municipal Corporation is issuing the bonds to fund a 60 MW captive solar photovoltaic power plant at the village of Samraj & Ashukhedi in Madhya Pradesh’s Khargone district.

Indore Municipal Corporation plans to issue green municipal bonds with an aim to raise up to Rs 244 crore to partly fund a solar power project in the city. This would be the first time a municipal body is targeting individual investors.

Indore is the most populous and the largest city by area in Madhya Pradesh.

According to the draft offer document filed with the capital market regulator Securities and Exchange Board of India, the non-convertible debentures (NCDs) will have a face value of Rs 1,000 each comprising four separately transferable and redeemable principal parts (STRPP).

A municipal bond is a debt instrument issued by corporations under municipal laws with the permission of the respective state governments. The funds raised are used to finance projects for socioeconomic development such as building bridges, schools and hospitals.

The minimum application size of the green bond issue would be Rs 10,000 (or 10 NCDs) and thereafter in multiples of Rs 1,000.

For each NCD, investors will be allotted four STRPPs which will be individually tradable after listing.

As per the offer document, each NCD of Rs 1,000 will comprise one STRPP A of a face value of Rs 250, one STRPP B of face value of Rs 250, one STRPP C of face value of Rs 250 and one STRPP D of face value of Rs 250.

STRPP A will have a tenor of three years, STRPP B five, STRPP C seven and STRPP D nine years.

The corporation will disclose the interest rate on these NCDs in the final offer document.

The green bonds offered are proposed to be listed on National Stock Exchange (NSE).

Indore Municipal Corporation is issuing the bonds to fund a 60 MW captive solar photovoltaic power plant at the village of Samraj & Ashukhedi in Madhya Pradesh’s Khargone district.

The total cost of the project has been estimated at around Rs 305 crore.

The proposed green bonds have been rated AA+ with a stable outlook by India Ratings & Research while Care Ratings has rated the issue AA with a stable outlook.

India Ratings said, “The rated instrument of the urban local body will have a cap of ‘IND AA+’ in the absence of any unconditional, irrevocable, pre-default and continuing guarantee from the sovereign for principal and interest payments throughout the life of the instrument or a full/partial credit guarantee from any multilateral donor agency.

“Negatives include deviation from the structured payment mechanism and sustained deterioration in the operational and credit profile of Indore Municipal Corporation.”

Care Ratings highlighted that the corporation’s growth with a sustained revenue surplus and uninterrupted improvement in property tax collection efficiency above 90 percent are key positives.

On the flip side, a slump in continued revenue surplus, and delayed receipt of goods and services tax compensation from the state government that has hit the liquidity position and led to a higher-than-envisaged debt level are key negatives.

The corporation in the draft offer document flagged that there may be no active market for the green bonds on the NSE platform. “As a result, the liquidity and market prices of the green bonds may fail to develop and may accordingly be adversely affected,” it said.

The city also highlighted delays, cost overruns and delay in receipt of GST compensation from the government as other key risks.