G20 push: Over 30 big cities on list to tap municipal bond market

Surat, Vizag may issue bonds soon as Centre renews urban infra focus

The Centre has identified more than 30 cities with good ratings in the municipal (muni) bond market. Surat and Visakhapatnam (Vizag) are likely to issue muni bonds soon, and Chennai could be the first of the megacities to do so this calendar year, Business Standard has learnt.
 

This comes at a time when there is a renewed push for deepening the muni bond market in the 2023 Union Budget, and India as

President of Group of Twenty (G20) is making urban infrastructure financing one of the key agenda items for the grouping.
 

Surat and Vizag’s issuances are for specific ring-fenced projects and preparations are said to be at an advanced stage.

The Indore Municipal Corporation has already taken the lead. In February, its green bonds were issued on the National Stock Exchange. It became the first Indian city to issue green bonds.

“We have been conducting regular workshops with states and municipal authorities on the sidelines of the G20 infrastructure working group meetings, where we are discussing innovative ways of financing urban infrastructure. As part of that initiative, many cities are now getting ready to tap into bond markets,” a senior government official told Business Standard.

The official said that based on meetings and reviews already held with municipal authorities, the Centre has identified more than

30 cities best placed to tap into bond markets.
 

“Surat is getting Rs 144 crore annually from selling treated wastewater to industries. That is an assured revenue stream. It wants to double capacity, for which it is expected to issue bonds soon,” said the official.

From a similar wastewater treatment project, Vizag is getting Rs 35 crore in revenue annually, and wants to expand its capacity as well, the official added.
 

The 30-plus cities rated ‘A’ are the ones that have done the most work, or planning to do the most work, in rationalising property tax rates, cleaning up their books, planning revenue-generating projects, etc.

Deepening the Indian muni bond markets has been one of the major themes in the Union Budget 2023. “The annual muni bond market size in the US is $386 billion. India’s bond market is a fraction of that; we are not even $1 billion,” the official said.

“Through property tax governance reforms and ring-fencing user charges on urban infrastructure, cities will be incentivised to improve their creditworthiness for muni bonds,” Finance Minister Nirmala Sitharaman said in her Budget speech on February 1. 

She had also said that part of the Rs 1.3-trillion infrastructure support to states for 2023-24 will be tied to states working on financing reforms in urban local bodies to make them creditworthy for muni bonds.

Also, the G20 nations, led by India, are working to finalise the priority principles of financing sustainable urban infrastructure, which is expected to be endorsed by finance ministers and central bank governors when they meet in Gandhinagar in early July.

If it comes to pass, the priority principles of ‘financing cities of tomorrow’ could be the first policy statement to be endorsed by G20 leaders under India’s Presidency. Like all G20 prescriptions, it will be non-binding among members.

The principles will focus on elements of sustainability and energy transition and speak about the need to deepen global infrastructure financing markets.