IAS Gyan

Daily News Analysis

Municipal bonds

3rd December, 2020 Economy

Context: INR 200 crores municipal bonds issue of Lucknow Municipal Corporation listed at BSE.

  • 10 year bond attracts huge investor interest with total bids of INR 450 crores--closes with attractive coupon rate of 8.5%
  • Lucknow becomes 9th city to raise municipal bonds, which has been incentivized by the Ministry of Housing and Urban Affairs, Government of India under the mission AMRUT (Atal Mission for Rejuvenation and Urban Transformation).
  • Upfront incentive amount equates to reducing interest burden by 2% on Municipal Corporation.

Significance: To help in improving Financial & Municipal Governance, make city move towards self Dependence--provide support for developing civic infrastructure-- Boost Aatmanirbhar City as Part of Aatmanirbhar Bharat.

  • Ghaziabad, Varanasi, Agra & Kanpur expected to also issue municipal bonds in coming months
  • It is the first municipal bond issue from North India and the first from Uttar Pradesh after the launch of the AMRUT scheme.
  • The considerable investor interest evinced by significant over-subscription of this bond issue is indicative of improving economic environment.
  • The Government of Uttar Pradesh and the Government of India have extended their full support to this issue which marks a paradigm change in urban governance and would trigger more market oriented and transparent local administration.
  • The Government of Uttar Pradesh is keen to encourage other local bodies in the state to emulate the example set by Lucknow Municipal Corporation.
  • This bond issue from Lucknow Municipal Corporation is rated ‘AA’ by India Ratings and ‘AA (CE)’ by Brickwork Ratings.
  • The proceeds of the issue are proposed to be invested in a water supply project being implemented under AMRUT scheme of the Government of India and a housing project.