Municipalities may raise Rs 6,000 crores from bonds, by FY20

[] Municipalities are likely to raise Rs 6,000 crores through bonds, over the next three fiscal years – more than four times of what they had mopped in the past two decades, says a report

Municipal bonds, worth Rs 6,000 crores are likely to be issued over the next three fiscal years, from progressive and proactive urban local bodies (ULBs), riding on policy and regulatory facilitations, according to a report by CRISIL. The government has also announced an interest subsidy scheme, to make such issuances competitive.

You are reading: Municipalities may raise Rs 6,000 crores from bonds, by FY20

The report said while the amount may seem small in the context of the massive infrastructure needs of the cities, it is more than four times what was raised in the past 20 years (Rs 1,350 crores). This June, the Pune Municipal Corporation had raised Rs 200 crores from 10-year bonds.

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Between fiscals 2011 and 2017, there were no issuances of municipal bonds in the country.

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The government and market regulator SEBI, have been working to improve ULBs’ access to the capital markets. In June 2017, SEBI had 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 bonds.

The government’s move, to develop civic infrastructure through the AMRUT and Smart City missions, requires significant capital spending by ULBs. The report estimates that ULBs will have to borrow nearly Rs 15,000 crores, to fund these projects through fiscal 2023. These will have to be funded by market borrowings, in addition to government grants.

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Several ULBs have initiated their bond issuance process by appointing transaction advisors, Subodh Rai of CRISIL said, adding more such issuances are in the offing.

“That’s because bonds offer ULBs structuring flexibility through longer tenures, annual interest payments and fixed coupon rates, compared with bank loans,” Rai said. “The capital market also has a large investor base and can turn out to be more competitive than bank borrowing,” he said.

The agency expects a gradual increase in investor interest in municipal bonds over the medium-term. The implementation of SEBI guidelines, will improve transparency and can go a long way in helping ULBs access the capital markets, it added.

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