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SEBI relaxes norms to allow smart cities raise funds through ‘Muni Bonds’

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Securities and Exchange Board of India (SEBI) eased its norms to allow smart cities to raise funds through ‘Muni Bonds‘. The entities working in areas of city planning and urban development work, including municipalities, special purpose vehicles (SPVs) set up under the central government’s ambitious ‘Smart Cities Mission’ can also raise funds through debt securities.Sebi allows custodial serices in commodity market, paves way for MF entry

Key Points:

  • Background: SEBI had issued its Issue and Listing of Debt Securities by Municipalities (ILDM) Regulations nearly 5 years ago and since then 7 municipalities have raised nearly Rs 1,400 crore by issuing their debt securities, which are commonly known as ‘Muni Bonds’.
  • Reason: Amendments were made to provide greater flexibility in raising funds and for strengthening protection for investors.
  • Requirements like the appointment of a monitoring agency, filing of viability certificate or Detailed Project Appraisal Report, setting up of a separate project implementation cell, maintenance of 100% asset cover with the specification of resources and mandatory backing of state or central government were withdrawn.
  • SEBI has allowed this route for other structures where a group of municipalities pools their resources together to jointly raise funds through the issuance of bonds. These structures are generally known as Pooled Finance Development Funds (PFDF).
  • Rules pertaining to creation of escrow accounts were eased.
  • The existing regulations (withdrawn now) allow issuance of only revenue bonds with a minimum tenure of 3 years and a maximum of 5 years, if it is a public issue.
  • In case of private placements, the minimum subscription amount per investor currently at Rs 25 lakh has been reduced to Rs 10 lakh to align it with the regulations for corporate bonds.
  • Any offer (private placement) or invitation made to qualified institutional buyers shall not be considered while calculating the limit of 200 persons.

About Muni Bonds/Municipal Bonds:
It is a debt security issued by a state, municipality or county to finance its capital expenditures, including the construction of highways, bridges or schools.