Pune Raises Rs.200 crore Via Municipal Bonds

Pune Municipal Corporation has raised Rs.200 crore for the smart city project by issuing municipal bonds, becoming the first local body in the country in nearly one-and-a-half decades to issue the instrument. The bond sale, handled by SBI Capital Markets, was oversubscribed six times. The bonds, rated AA+, one of the top ratings, offered 7.59%, about 30-40 basis points more than bonds sold by state governments.

“We have shown resolution and financial strength,“ said PMC commissioner Kunal Kumar. “We have chalked out a 30-year plan to increase our tariffs, a source for revenue. We have also obtained political support for the plan,“ he said. “This successful fund-raising should encourage other local bodies also to hit the markets soon.“

Pune municipality became the first civic body in the country to raise money by issuing bonds on Bombay Stock Exchange. The municipal body raised Rs.200 crore through BSE's bond trading platform and was oversubscribed by six times --approximately Rs.1,200 crore.This also marked the re-entry of municipal bonds after 14 years, which is being seen as the beginning of resurgence in the municipal bond market in India.

New Delhi Municipal Council is likely to issue bonds to raise Rs.200 crore by this month-end while Ahmedabad Municipal Corporation would hit the bond market to raise a similar amount in the next one month. About a dozen municipalities are expected to raise Rs.6,000 crore through municipal bonds during this financial year.

Pune Municipal Corporation raised Rs.200 crore at a 7.59% coupon for 10 years for its ambitious 24x7 water supply for the entire city , which is better than the coupon rate for government securities at 8%.

“We require about Rs.3,300 crore for the round-the-clock water supply ... We will raise 2,300 crore by issuing bonds. We will go more fresh tranches as and when we require funds,“ Pune municipal commissioner Kunal Kumar said. He added municipal bodies tapping the bond market will improve availability of finance for more development works and projects, particularly under the government's Smart City programme. Ashishkumar Chauhan, CEO and MD of BSE said that the PMC bond offering is a pilot case and it will help municipalities understand the servicing aspect related to such papers. Even investors will understand the risks associated with municipal bonds. “We invite all the municipalities to raise the funds and follow PMC's successful bond issuance,“ Chauhan said. He added that Indian bond markets are poised for a substantial growth and the nation can use its domestic savings to fund its infrastructure needs.

Over-subscription of PMC's bond is also being seen as a positive indication considering that only Rs.1,100 crore have been raised through bonds in the past three decades. In developed markets, a large number of municipalities raise money issuing bonds, called Munis or Muni bonds, but the investors in these debt papers are very specialised ones and hence liquidity is less compared to other types of debt papers. In the US, according to one database, average daily trading in Munis in May was $10.7 billion, compared to about $32.7 billion in corporate bonds and over $530 billion in government papers. The Pune municipal bond issue came within six months of PM Narendra Modi asking SEBI bourses and other market players to get at least 10 municipal bodies listed within the next one year.

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