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Sebi to set rules, offer sops for green bonds

Move aimed at encouraging domestic listing of such bonds

Jayshree P Upadhyay  |  Mumbai 

Sebi to set rules, offer sops for green bonds

The Securities and Exchange Board of India (Sebi) is set to unveil rules on monitoring the end use of green bonds, and might propose incentives for companies to issue them at its board meeting on November 30 (next Monday).

“Sebi is working on regulations that will incentivise companies to launch green bonds. We would like these bonds to be listed on the domestic exchanges instead of on overseas exchanges,” said a source privy to the development.

“Regulations by Sebi are likely to be followed by regulations by the Reserve Bank of India (RBI) so that they can offer competitive rates,” said another person familiar with the matter. Neither source wished to be named because no official statement had been made yet. An e-mail to a Sebi spokesperson remained unanswered.

The move will enable Indian companies to raise capital at home through this instrument. It will also be a major step towards the government’s commitment on reducing India’s carbon footprint.

Green bonds invest in environment-friendly projects in areas like renewable energy, waste management, clean transportation, sustainable water management and climate change adaptation.

Lack of regulation has forced a majority of Indian players to tap the market abroad for green bonds.

Earlier this year, lenders, including YES Bank and Export Import (Exim) Bank, did green bond issuances abroad. IDBI Bank announced on Thursday that it had raised Rs 2,310 crore via green bonds in Singapore. Companies such as ReNew Power and Hindustan Powerprojects had to launch these bonds by tying up with financial institutions instead of launching them on their own due to lack of regulations or a special dispensation for these bonds.

The clean energy arm of Hindustan Power Project entered the credit-enhanced bond market with an issue fully underwritten by YES Bank. ReNew Power Ventures was the first Indian company to issue credit-enhanced green bonds, raising $68 million, backed by Goldman Sachs.

“Lenders find it feasible to list on overseas exchanges because there are classes of investors there that invest in these bonds,” said Ajay Manglunia, head of fixed income, Edelweiss Securities.

There are no incentives associated with these bonds for Indian issuers or investors, apart from being infrastructure bonds that do not attract statutory banking reserve requirements.

Experts are viewing this as a first step towards the government’s aim of 175 gigawatt of renewable energy in the country by 2022. According to an HSBC report, this ambition might be too steep. To reach a new climate agreement at the Paris COP21, India would need to invest at least $2.5 trillion by 2030, The Financial Times recently reported.

“These investment requirements can be fulfilled by offering incentives on green bonds to both foreign and domestic investors,” said an industry expert.

“Green bonds raised approximately $12.9 billion during the second quarter of 2015, bringing year-to-date totals to roughly $19.2 billion. Based on first-half 2015 issuance volumes, and considering second-quarter issuance momentum as well as expectations of continued offerings in China and India, green bond volumes for 2015 are highly likely to exceed — and could even double — last year’s record volume of almost $37 billion,” said a Moody’s report in August.

What are green bonds?
Structured like ordinary bonds but will invest in only those companies and projects that help in reducing carbon footprint

Projects they invest in
Renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management and climate change adaptation

Special dispensations
No special dispensations allowed, apart from them being under RBI’s infrastructure bond category. Do not attract statutory requirements such as CRR & SLR

Funds raised by these bonds globally
$12.9-billion raised during the second quarter of 2015, bringing year-to-date totals to roughly $19.2 billion. Last year, fund-raising globally touched a record high of $37 billion

Indian issuances and fund-raising
YES Bank issued the first-ever green infra bonds in February this year. It raised Rs 315 crore through the issue of green infra bonds to IFC on a private placement basis. Exim Bank raised Rs 3,330 crore in March via green bond sale. IDBI plans to mop up Rs 2,331 crore via green bonds

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First Published: Fri, November 27 2015. 00:59 IST