In A First In India, Municipal Bond Issue For Retail Ends Tomorrow; Should You Invest?

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In a first-of-its-kind initiative in India, the Indore Municipal Corporation (IMC) garnered Rs 661.52 crore on the first day of a public issue of green bonds to raise capital for setting up a Rs 244 crore solar power plant.

The issue was opened for subscription on February 10 and the public issue will close on Tuesday, February 14.

On the first day, the green bond was oversubscribed by 5.42 times against the base price of Rs 122 crore.

This is first time a municipal body is targeting individual investors in India.

Reportedly, only up to 25% of the issue has been reserved for retail individual investors, and the allotment will be done on a first-come-first-serve basis.

The base issue size is Rs 122 crore with an option to retain an oversubscription of up to Rs 122 crore, aggregating up to a limit of Rs 244 crore.

Moreover, only a few prominent Indian MCs have used bonds as a source of finance. Bengaluru MC floated municipal bonds for the first time in India in 1997, followed by Ahmedabad MC in 1998. Since then, the Indian municipal bond market witnessed a healthy growth until the mid-2000s.

Notably, the IMC became the first municipal corporation to list on the National Stock Exchange of India (NSE) in 2018 while Ghaziabad MC became the first municipal corporation to issue green bonds in India in 2021, Moneycontrol reported.

IMC’s public issue of rated, listed, taxable, secured, redeemable and non-convertible green municipal bonds have a face value of Rs 1,000 each and a minimum application of Rs 10,000.

Each bond comprises four separately, transferable and redeemable principal parts (STRPP) with each STRPP having a face value of Rs 250.

The green bonds have a tenor of three years (STRPP A), five years (STRPP B), seven years (STRPP C) and nine years (STRPP D).

Investors will have exposure to all four tenors in each non-convertible debenture (NCD).

Experts feel that the risk associated with muni bonds is minimal and IMC carries a rating of AA+, which is the second-highest credit rating.

“While the issue is not sovereign backed, it is implied that if there is any complication tomorrow, the Madhya Pradesh government will step in. The corporation is also financially strong,” Moneycontrol quoted Vikram Dalal, Founder and Managing Director, Synergee Capital Services as saying.

Deepak Panjwani, Head-Debt Markets, GEPL Capital, said, “Investors can go for Indore Municipal Corporation’s public issue as the city is continuously receiving the Clean City of the Country Award for the last couple of years and their corporation is working on the right path. Further, payable semi-annually, the yield is 8.42 percent, and investors can access that as interest rates are very near to their peak and over a period of time the yields will fall.”

Moreover, investors must note that the corporation in the draft offer document flagged that there may be no active market for the green bonds on the NSE platform.

“As a result, the liquidity and market prices of the green bonds may fail to develop and may accordingly be adversely affected,” it said.

Indore also highlighted delays, cost overruns and delay in receipt of GST compensation from the government as other key risks.

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