MUMBAI: The government did not raise any funds through the first sovereign green bond auction of the current financial year as the Reserve Bank of India – the Centre’s debt manager – accepted no bids at the sale.
Bond traders said that the decision to accept no bids was likely because the market sought yields that were at higher levels than the government and the RBI were comfortable with.
Further, with the Centre sitting on a considerable cash surplus at the moment, it had likely opted to cancel the green bond auction than settle for a lack of a premium, or “greenium” at the auction. The government had planned to raise Rs 6,000 crore through 10-year green bonds at Friday’s auction.
“The government has a large cash balance and therefore it can be picky about the prices or yields at which it wants to sell securities. Secondly, there was likely a disconnect between where the RBI and the government wanted to price the green bonds and where the market was bidding,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.
Dealers said that several bids were placed above the 7% mark for the green bonds, whereas the regular 10-year bond yield was around the 6.99-7.00% level when bidding was taking place at the auction.
In March, the RBI announced the sale of sovereign green bonds worth a total of Rs 12,000 crore through two tranches in April-September. The government had started issuing sovereign green bonds in FY23. Proceeds of such bonds are used for environmentally sustainable projects.
Around the world, green bonds are typically issued at a lower yield than regular bonds of comparable maturity. This lower yield, or premium, is referred to as a “greenium” for green bonds. Investors typically accept lower returns for green bonds as the funds raised through them are meant for environmentally friendly purposes.
However, India does not yet have an established ecosystem of investors with a mandate for subscribing to green bonds, traders said.
