Hyderabad raises Rs 200 crore bonds, Ahmedabad, Surat, Delhi to issue municipal bonds in six months
SBI Capital Markets (SBI Caps) will help municipal corporations raise about Rs 1,000 crore through municipal bonds in the next six months. The municipal corporations of Ahmedabad, Surat and Delhi will be next to hit the bond market with SBI Caps as the sole arranger.
Ashwini Bhatia, president and chief operating officer (COO), SBI Caps, told DNA Money, “We have a pipeline of Rs 1,000 crore for municipal bonds to be raised in the next six months. More corporations are likely to explore the bond option to bridge their small funding gaps. There is also a good investor appetite for the municipal bonds.”
The unsecured bond issue is backed by a structured repayment mechanism whereby the tax, fees and user charges collected by the municipality is deposited in a separate escrow account to repay the debt.
The Greater Hyderabad Municipal Corporation rated AA on Wednesday raised Rs 200 crore by selling 10-year bonds, becoming the second civic body to tap funds from the bond route to build roads in a programme aimed at decongesting the roads in Hyderabad. Proceeds from the issue, which was subscribed two times at a coupon of 8.9 %, would be used to fund a strategic road.
Greater Hyderabad Municipal commissioner B Janardhan Reddy told DNA Money, “We have 54 lakh vehicles registered in Hyderabad. Another five lakh vehicles come into the city every day so a strategic road project to decongest Hyderabad is planned with an outlay of Rs 3,518 crore.”
The municipality is planning to raise Rs 1,000 crore from bond sales in tranches. Another Rs 1,500 crore will be raised through bank funding. The bond issuance has been rated 'AA' (stable) by credit rating agencies and was subscribed two times.
The PMC had in June 2017 raised Rs 200 crore by selling 10-year bonds, becoming the first civic body to tap money through this route in 15 years. That issue was subscribed over six times or Rs 1,200 crore from 21 investors spanning across insurance companies, mutual funds, nationalised banks and long-only pension funds.
Till date the total amount raised in municipal bonds is Rs 1,095 crore.
Rating agency Crisil in a report released in November 2017 had said that urban local bodies are estimated to raise about Rs 15,000 crore by 2023 with 92 cities already getting rated.
The government’s move to develop civic infrastructure across the country through the AMRUT1 and SMART City missions requires significant capital spending by ULBs. These will have to be funded by market borrowings in addition to government grants.
Given the large requirement, the government and the Securities and Exchange Board of India in June 2017 notified guidelines on disclosure of financial information by ULBs at regular intervals, and audit of accounts to increase transparency, to improve the prospects for municipal bond issuances. On its part, the government has also announced an interest subsidy scheme to make issuances competitive.
FUND AVENUE
- Hyderabad has become the second civic body after Pune to tap funds from the bond route
- Proceeds from the issue, which was subscribed two times at a coupon of 8.9 %, would be used to fund a strategic road
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