Cities that surround India’s financial capital Mumbai are planning to raise funds through bonds for the first time over the next few weeks, three merchant bankers said on Wednesday, signalling a further pick-up
in the local municipal debt market.
Navi Mumbai and Panvel, both located on the mainland to the
east of Mumbai, have kicked off the process by getting issuer
credit ratings.
While Navi Mumbai could target a fundraise of around ₹1000 crores, Panvel would go for a smaller
amount with the quantum yet to be finalised, one of the bankers
said.
The bankers requested anonymity as the matter is private.
The city corporations did not respond to Reuters queries.
For years, India had tried to popularise municipal bonds –
common elsewhere in the world – as a way to fund urban
transformation.
Municipal corporations, local bodies that run cities in
India, typically fund public projects such as roads, water
supply and sanitation through bonds.
While over 20 cities have raised more than 45 billion rupees
over the last nine years through bonds, according to regulatory
data, Mumbai, the richest municipal body in India, has yet to
tap the bond market.
Navi Mumbai has received a AA+ rating from India Ratings,
while Panvel is rated AA- by Care Ratings. The ratings are
backed by the cities’ strategic location, strong financial
profiles, revenue generation and debt-free balance sheets.
In February, India’s Finance Minister Nirmala Sitharaman
announced an incentive of ₹100 crore for municipal
corporations issuing bonds worth at least 10 billion rupees.
The government also provides a subsidy for maiden bond
issues as well as a 2 percentage point interest subvention that
makes such borrowing cheaper.
There is also growing interest in the market.
Last week, Reuters reported that the International Finance
Corp is in talks with states and urban local bodies to invest in
municipal bonds.
IFC has signed multiple mandates in states and could act as
an anchor investor to mobilise private funding, Imad Fakhoury,
the South Asia regional director, said. The organisation is also
looking to facilitate pooled bonds for smaller cities, he said.