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India’s biggest municipal bonds programme launched in Maharashtra

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On June 22, 2017, Pune Municipal Corporation launched India’s biggest municipal bonds programme. The project looks to raise Rs 2,264 crore in five years.

  • Union Urban Development Minister Venkaiah Naidu launched the programme at Bombay Stock Exchange on June 22, 2017.
  • Maharashtra Chief Minister Devendra Fadnavis, Union Minister of State for Finance and Corporate Affairs Arjun Meghwal and senior government officials were present during the listing ceremony.

What are Municipal Bonds?

Municipal bonds are debt instruments through which a municipal corporation raises money from individuals or institutions.

  • The civic body floating the bonds returns the principal amount on a maturity date with a specific amount of interest.
  • There are usually two kinds of bonds – Revenue Bonds and General Obligation Bonds.
  • Revenue Bonds are municipal bonds that finance income-producing projects and revenue from the projects is used to repay the buyers.
  • General Obligation Bonds raise money without mentioning the cause in particular and are backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project.

About Pune Municipal Corporation’s Bonds Programme:

In its first tranche, the Pune Municipal Corporation raised Rs.200 crore through the Bombay Stock Exchange’s bond trading platform at a coupon rate of 7.59% for ten years.

  • The issue received a good response with bonds being over-subscribed by six times.
  • The Pune civic body will use the funds for its 24×7 water supply project and has decided to India's biggest municipal bonds programme launched in Maharashtraadopt a telescopic water tariff structure for the next 30 years to generate revenue from it. A Tariff structure where rate increases as the consumption rises is termed as Telescopic Tariff.
  • A portion of Corporation’s property tax collection will be set aside to service the debt programme.
  • Pune’s bond programme is the first since the publication of the Issue and Listing of Debt Securities by Municipalities Regulations, 2015, by the Securities and Exchange Board of India (SEBI).

Upcoming Municipal Bonds in India:

Last year, Prime Minister Narendra Modi urged SEBI and the Centre’s Department of Economic Affairs to get at least 10 cities to issue municipal bonds within a year as part of his Smart Cities mission.

  • The municipal corporations of New Delhi, Ahmedabad and a few others have also lined up with credit ratings and the necessary documentation to issue municipal bonds in near future.