Sovereign green bonds may get 6-8 bps ‘greenium’ in H2FY24 on firm demand: Experts

The greenium will be slightly higher than that received for the maiden green bond issue earlier this year.

India sovereign green bonds, which will be issued in the second half of the current financial year, are likely to get a 6-8 basis point premium or ‘greenium’ on firm demand from certain investors, said money market experts.

The greenium will be slightly higher than that received for the maiden green bond issue earlier this year.

“The premium will be around 6-8 bps. As awareness increases, liquidity will increase and it will also command more of a premium,” said Umesh Kumar Tulsyan, Managing Director of Sovereign Global Markets.

The premium on the yields on these bonds is the difference between regular sovereign bond auctions and green bond auctions. It is also known as the pricing benefit, which issuers enjoy globally by selling environment-friendly bonds or securities.

Murthy Nagarajan, Head Fixed Income of Tata Mutual Fund, said the greenium would be in line with the maiden issuance due to demand from investors such as foreign banks.

Size of the issue

The central government on September 26 announced that green bonds worth Rs 20,000 crore would be issued in the second half of the borrowing calendar.

Separately, the Centre will borrow Rs 6.55 lakh crore by issuing government securities in the second half of 2023-24.

As per the borrowing calendar announced on September 26, the government will issue Green Bonds of three maturities: Rs 5,000 crore each of 5 years on November 10, and of 10 years on December 8.

Similarly, two bonds of 30 years, worth Rs 5,000 crore each will be issued on January 19, 2024 and February 2, 2024.

In the last quarter of 2022-23, the government had issued Green Bonds maturing in only 5 and 10 years.

Why green bonds?

Experts are of the view that the announcement of the green bonds is to fund the green projects announced in Union Budget 2023 by the government.

The projects include green fuel, green farming, green mobility, green buildings, and green equipment, among others.

Further, Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincorp, said India’s strategic importance and commitment to green growth, as announced in the budget, makes it very clear that the Government will continue to drive this initiative.

“Reduced greenium last time hasn’t dented spirits as the Government has, in fact, increased the issuance size from Rs 16,000 crore to Rs 20,000 crore this year. That, too, 50 percent is in long duration 30-year sovereign green bonds,” he added.

Maiden green bond issue

On January 25, the Centre raised Rs 8,000 crore through its maiden sovereign green bond issue. The bonds had a 10-year and 5-year maturity, and set yields over six basis points (bps) below the current normal sovereign benchmark bonds.

The government set 7.29 per cent as the cut-off yield on the maiden 10-year sovereign green bonds (SGrB) or NEW GOI SGrB 2033 and 7.10 per cent as the cut-off yield on the NEW GOI SGrB 2028.

As per the full results, the issue received competitive bids worth Rs 19,367 crore for the 10-year SGrB, of which the RBI accepted bids worth Rs 3,948.646 crore. Similarly, the issue received non-competitive bids worth Rs 51.354 crore.

On the 5-year SGrB, the accepted competitive bids worth Rs 3,993.124 crore, and non-competitive Bids worth Rs 6.876 crore.