Mumbai: The Securities and Exchange Board of India (Sebi), which earlier this year approved a liquidity guarantee for corporate debt, is taking fresh strides to develop the nascent municipal bond market and help make civic bodies more self-reliant for infrastructure development.
The market regulator will hold a meeting with investment bankers, rating companies, legal professionals, exchange officials and borrowers on October 3 and 4 in Jaipur to discuss ways to drive more municipal bond issuances, multiple people aware of the meeting told ET.
“Sebi has been conducting such meetings every three to six months in different regions so as to cover more municipalities,” one of them said. “Since last year, the Reserve Bank of India and Sebi have both been encouraging more civic bodies to issue bonds and to adopt pooled finance.”
Pooled finance refers to a process under which a common bond is issued by pooling the resources of several local bodies. Over the past few months, a slew of municipal bodies including Vadodara, Chennai, Kolkata, Prayagraj, Agra, Kanpur, Varanasi, Ahmedabad, Pimpri-Chinchwad, and Surat have made plans to raise a total of more than ₹1,000 crore through the issuance of bonds.
In February, Indore Municipal Corporation launched the country’s maiden public issue of civic bonds, announcing a plan to raise up to ₹244 crore through sale of green bonds to fund a solar power project. So far, the bulk of investors in municipal bonds are institutional players.
In a November 2022 note on municipal finances, the RBI had said that as demand for infrastructure grows in cities, municipal corporations must look for ways to reinvigorate and foster alternative and sustainable mobilisation of resources through municipal bonds.
The process of raising pooled finance essentially involves creation of a state pooled finance entity that can be registered as a trust of a special purpose vehicle (SPV), the RBI report said.
With debt servicing being financed through the pooled revenue stream of the civic bodies, the process lowers the cost of bond issuance and augments creditworthiness as risk gets hedged throughout the participating bodies, it said.
