Skip to main content

SEBI seeks relaxed rules for municipal bodies eyeing bond market

Image
By
SEBI seeks relaxed rules for municipal bodies eyeing bond market
SEBI has approached the government to allow municipal corporations and municipalities to access the bond market through pooled finance
The capital markets regulator has approached the government to allow municipal corporations and municipalities to access the bond market through pooled finance, two people aware of the development said.Many civic bodies do not sell bonds because lower-rated securities have few takers. In pooled finance, several civic bodies jointly float a trust, which issues the bonds.
Investors are seen as more open to buying bonds which can be serviced by different revenue streams. Trusts are currently not allowed to sell bonds.The Securities and Exchange Board of India (Sebi) was previously considering a proposal to allow small municipal bodies to come together
“The feedback Sebi gathered is that good-rated municipalities are not willing to be pooled with low-rated ones. It has also given a feedback to government on giving tax incentives for municipal bonds to work, but there was no announcement to that effect in the budget. The bond market will have to wait for the next budget for this,” said the first of the two persons cited earlier.
The process is likely to be time-consuming, further delaying the growth of the market.In March, ratings of 94 cities, which are part of Smart City Mission and Atal Mission for Rejuvenation and Urban Transformation (AMRUT), were detailed by the ministry of housing and urban affairs. Of these, 55 cities got investment grade rating (BBB- and above), while other 39 were rated below BBB-.
“Pooled mechanism can help lower rated urban local bodies to come together and issue bonds. Investors can take comfort from the fact that there is diversification of revenue sources to service debt. This mechanism was also used in 2003 in Tamil Nadu,” said Subodh Rai, senior director at Crisil Ratings
Last month, Greater Hyderabad Municipal Corporation (GHMC) raised Rs200 crore by selling municipal bonds. The bonds, rated AA, were priced at a coupon of 8.90%, which will be paid twice in a year.This was followed by a similar issuance by Pune Municipal Corporation (PMC) in June 2017. The civic body raised Rs200 crore, marking the comeback of municipal bonds after at least 14 years. PMC’s bonds were rated AA
At least five other civic bodies with investment grade ratings are in discussions to sell municipal bonds worth Rs1,000 crore in the next six months, according to bond dealers who requested not to be named.“Structuring of bonds by securitizing revenues through an escrow mechanism can help ‘A’-rated ULBs (urban local bodies) get a credit enhancement and access to the capital market. For instance, property tax collections could be securitized and kept in an escrow account.
Bond holders will have first right on the escrow account as far as debt servicing is concerned,” said Crisil’s Rai. The rating agency expects Rs6,000 crore of municipal bond issuances over next three fiscals.
The Mint, New Delhi, 13th March 2018

Comments

Post a Comment

Popular posts from this blog

Shrinking footprints of foreign banks in India

By
Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…
Post a Comment
Read more

RBI rushes in to prop up falling rupee

By
RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…
Post a Comment
Read more

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

By
GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…
Post a Comment
Read more