Nabard raises Rs 1,041 crore through India's first social impact bond

State-run entity sets coupon of 7.63% on this issue

National Bank for Agriculture and Rural Development (Nabard) on Tuesday raised Rs 1,041 crore through its social impact bond, which matures in five years, at a coupon of 7.63 per cent. Nabard’s base issue size was Rs 1,000 crore, and a green shoe option of another Rs 2,000 crore.

This marks Nabard’s first externally certified AAA-rated social bonds in the country, said Nabard in a statement. The bonds have been rated AAA rating by CRISIL and ICRA.

Market participants said that investors were demanding a higher rate on the special bond, but Nabard was not ready to pay more than the rate on its existing bonds.

“In the morning, the yields were on the higher side, Nabard’s was a social sector special category bond. The number of investors for such causes, especially ESG and other banks, is not much. So they (Nabard) found it tough to raise the required amount and they didn't want to pay a higher coupon,” said Ajay Manglunia, managing director and head investment grade group at JM Financial. “So they decided to issue that much only. People were asking for slightly higher than the normal bond. So if you look at the pricing, which they attained, it was more or less in line with what the normal bonds of Nabard are today.”

Nabard said issuance garnered an overwhelming response from institutional investors, resulting in an impressive total bid of Rs 8,590.50 crore. “Nabard accepted Rs 1,040.50 crore at a coupon rate of 7.63 per cent,” the financial institution said.

Arrangers to the issue were A K Capital Services, ICICI Securities Primary Dealership, and Trust Investment Advisors Private Limited.

“The five-year bonds were trading around 7.68- 7.70 per cent in the secondary market, so the bidding was around that line. But Nabard was expecting some ‘greenium’ on the bonds,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

Greenium refers to the pricing benefits of green bonds, as investors are willing to pay a premium or settle for reduced returns due to their contribution to sustainable financing.

“They were getting the entire Rs 3,000 crore at 7.68 per cent, only 5 basis points higher, but they were thinking that they should get the entire amount at 7.63 per cent,” said a dealer at a private bank. “That was their expectation, that’s why they went for the base issue size,” he added.