Ghaziabad and Lucknow civic bodies to list municipal bonds on NSE

Right after Indore Municipal Corporation (IMC) in Madhya Pradesh listed its municipal bonds on NSE, Lucknow and Ghaziabad civic bodies in Uttar Pradesh are also following suit to raise about Rs 2 billion each.

Lucknow and Ghaziabad had received A- credit rating in 2016-17 and emerged better placed to pursue debt market for raising funds under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) compared to peers in the state, including Varanasi, Kanpur etc.

Of the total 17 municipal corporations in UP, Lucknow and Ghaziabad are the biggest with annual budget of around Rs 20 billion each. The bond is a debt security issued by a municipality to finance capital expenditure, while the investors get payments on a predetermined rate of interest over a stipulated time period.

Recently, Indore had become India’s only third city after Hyderabad and Pune to list municipal or muni bonds on NSE’s debt market platform on July 5. IMC had issued debt papers aggregating Rs 1 billion with green shoe option of Rs 700 million and received an over-subscription of 1.26 times.

IMC had issued municipal corporate bonds under AMRUT scheme, which was launched by Prime Minister Narendra Modi in June 2015 to create robust sewage networks and water supply for urban transformation by implementing urban revival projects.

Meanwhile, the Yogi Adityanath government has appointed transaction advisors for Lucknow and Ghaziabad local bodies. The advisors would facilitate the process of creating the framework of issuing bonds, statutory clearances, preparing bond documents, up to the final listing on the debt market platform.

“A fresh credit rating based on current financial and revenue collection status position of the two municipal corporations would be prepared. The whole process is likely to take another 6 months and by January, the muni bonds could be issued and subsequently listed,” an official source told Business Standard.

Besides, the Adityanath government had also directed other municipal corporations and development authorities to get credit ratings from designated agencies for prospective floating of bonds. Cities like Kanpur and Varanasi are also expected to expedite their respective bond market plans once Lucknow and Ghaziabad lead by example.

While, UP is now waking up to this route, neighbouring MP has surged ahead with Bhopal, Jabalpur and Gwalior also looking at raising funds via muni bonds in the next 3-4 months.

Meanwhile, Mahindra Mutual Fund MD & CEO Ashutosh Bishnoi said the Smart City Project had the potential to boost the domestic municipal bond market on the lines of the developed economies, where the space was quite popular with both investors and local governments.

Last year, 94 Indian cities had received credit ratings from rating agencies as part of their stride towards bonds. Of these 94 cities, only 55 cities had received investment-grade ratings.