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How Indore has set the tone for municipal bonds

Indore muni bonds have been oversubscribed 1.26 times, extending the total bid value to Rs 215 crore.

, ET Bureau|
Last Updated: Jul 05, 2018, 08.42 PM IST
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Indore muni bonds have been oversubscribed 1.26 times, extending the total bid value to Rs 215 crore.
MUMBAI: Madhya Pradesh, known otherwise for its farm output, Thursday became the first Indian state to list municipal bonds on the National Stock Exchange (NSE), marking a new chapter in fund-raising for new-gen urban clusters that New Delhi wants to build under the Smart City programme.

Indore, the commercial hub of central India and business capital of Madhya Pradesh, led five local bodies that would collectively raise up to Rs 1,200 crore through the sale of municipal debt papers. Indore Municipal Corporation, rated as AA (SO), or two notches lower than the top grade, has raised about Rs 140 crore by selling bonds, which offered 9.25% with 10-year maturity.

SO or Structured Obligation is a guarantee of sorts for investors.

The issuer will transfer property tax related revenues to an escrow account maintained with a bank, which will be used to service the debt as and when repayment obligation arises.

Other MP local bodies, including Jabbalpur, Gwalior, and Bhopal, are likely to tap the “muni bonds”, as the instruments are popularly known.

"We have plans to tap the bond market for the development of infrastructure in the state,” Madhya Pradesh Chief Minister Shivraj Singh Chouhan said at the NSE listing ceremony. “We are expecting at least three more issuances of Municipal Bonds from Municipal Corporations in Madhya Pradesh in the next three to four months."

Jabbalpur, Gwalior and Bhopal may raise Rs 200 crore each while local bodies in Ahmedabad (Rs 500 cr) and Surat (Rs 100-150 cr) are also in the process of selling collectively about 600-700 crore in the coming months, a person with direct knowledge of the matter told ET.

Indore muni bonds have been oversubscribed 1.26 times, extending the total bid value to Rs 215 crore. The local body did not retain the full sum.

There were five investors, including MP provident fund and other state-owned entites, which obtained allotments.

“Healthy states will be able to raise money,” said Vikram Limaye, Managing Director & Chief Executive Officer, NSE. “Unless we get the market developed right in the next two-three years, it will be difficult for the economy to grow at a higher pace, based on only bank financing. We must have more capital raising programmes from all types of issuers, including SMEs, mid and large cap companies.”

Earlier, two local bodies from Puna and Hyderabad sold muni bonds, which are still new in India unlike in the US, where there is a liquid market for such type of paper. These bonds are listed on the Bombay Stock Exchange.

Even though Indian muni bonds are listed on exchange platforms, trading volumes are thin.

Daily trading volumes would be Rs 2-3 crore, compared with about Rs 200 crore in top-rated corporate bonds, according to a market estimate.

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