SEBI mulls norms for issuance, listing of ‘municipal bonds’

Moneylife Digital Team 08 December 2014

Municipal bonds serve as an efficient tool for local bodies to mop up funds and can be extensively tapped to meet funding needs of urbanisation, while providing a new investment avenue to public and institutional investors

Market regulator Securities and Exchange Board of India (SEBI) will soon come out with a new set of norms to enable issuance and listing of municipal bonds — a popular financial product in developed countries like the US. This move would help channelise household savings and provide a new investment avenue, the market regulator feels.

Under the proposed framework currently under consideration of SEBI, municipal bonds would be debt securities issued by states, cities and other government entities which will use the money for infrastructure developments like buildings, schools, highways, hospitals, sewage systems and other projects for the public good.

An internal SEBI panel, the Corporate Bonds and Securities Advisory Committee (CoBoSAC) had constituted a sub-committee for specifying the disclosure and other requirements for issuance and listing of municipal bonds.

The sub-committee has submitted its report to the CoBoSAC, whose recommendations would form the basis to draft norms for way ahead of these bonds and the final guidelines would be put in place after going through a public consultation process on the draft norms, a senior official said.

Commonly known as ‘muni bonds’, these investment products are very popular among investors in many developed nations, especially the US, where muni bonds have attracted investments totalling over $500 billion and are among preferred avenues for household savings.

These bonds can be issued by urban local bodies to finance infrastructure such as water supply and sanitation.

They serve as an efficient tool for local bodies to mop up funds and can be extensively tapped to meet funding needs of urbanisation, while providing a new investment avenue to the public and institutional investors.

The market for ‘muni bonds’ is yet to take off in India even though few municipalities here have offered such products in the past, while Ahmedabad Municipal Corporation in Gujarat was the first to launch such a bond way back in 1998.

While there is already an existing framework for issuance of muni bonds, including by the Ministry of Urban Development, there are no unified norms to bolster this nascent market.

The fresh push for muni bonds has come at a time when the regulators and the government are looking at ways to channelise household savings into the market to boost overall economic growth.

India’s savings rate stood at little over 30% of the GDP in 2012-13 fiscal while household savings rate was nearly 22% during the same period.

In India, muni bonds were issued for the first time by a municipality in Gujarat, the home state of Prime Minister Narendra Modi.

Way back in 1998, Ahmedabad Municipal Corporation had become the first municipality to come out with muni bonds.

Since then few others, including Greater Vishakhapatnam Municipal Corporation, had issued such bonds.

India would need more than $800 billion investments to cater to the urban infrastructure needs over two decades, as per industry chamber Assocham, and muni bonds can serve as an effective fund-raising instrument in this regard.

Besides the US, other countries with a developed muni bond market include Canada and Russia.

Comments

User

webkitendfullscreen

1 decade ago

The concept to fund urban infrastructure is good. But sadly this would be misused to fill pockets of muncipal councillors, officers. Even in USA urban authorities become bankrupt. Hope the extend of siphoning is controlled in case these bonds floated