10 year bond attracts huge investor interest with total bids of INR 450 crores–closes with an attractive coupon rate of 8.5%
India Delhi –
The INR 200 crore municipal bonds issue of the Lucknow Municipal Corporation (LMC) was listed at Bombay Stock Exchange today. The Hon’ble Chief Minister of Uttar Pradesh Yogi Adityanath attended the Bell Ceremony at the National Stock Exchange in Mumbai today. With this, Lucknow has become the 9th city in the country to have raised 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). The bonds issue will ensure that the LMC will get ₹26 cr to subsidise its interest burden. This upfront incentive amount equates to reducing interest burden by 2% on the municipal corporation. It will help in improving financial & municipal governance, make city move on the path of self dependence and provide necessary support for developing civic infrastructure. This will also boost AatmaNirbharCity as a part of AatmaNirbharBharat.
Lucknow Municipal Corporation (LMC) successfully launched its maiden municipal bond issue on November 13, 2020 which has been listed today and is tradeable on Bombay Stock Exchange. The total issue of INR 100 crores (including green shoe option of up to INR 100 crores) attracted considerable investor interest and received bids totaling to INR 450 crores. It closed at a very attractive coupon rate of 8.5% for a ten-year bond, which is a record, particularly in times of COVID and is reflective of the investor demand for good quality and well-structured municipal bonds.
This is a historic occasion as 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. It follows the pioneering trend set by Ahmedabad Municipal Corporation which issued the first municipal bond for INR 100 crore without state government guarantee to finance infrastructure projects in January, 1998. 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. It is expected that the municipal corporations of Ghaziabad and then other cities such as Varanasi, Agra and Kanpur will also issue municipal bonds in the coming months, followed by a pooled municipal bond issue from some of the smaller municipal entities in the state.
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. The tenure of the Lucknow Municipal Corporation bond is 10 years and it is structured as a ‘strip’ bond with 7 STRRPs (A to G) and principal repayment to happen in 7 equal annual payments from the 4th year to the 10th year. In addition to asset cover, a structured payment mechanism has been put in place to ensure timely payment of both principal and interest obligations.
The significance of this maiden bond issue from an urban local body in Uttar Pradesh is not merely the quantum of resources raised for investments in urban infrastructure but a demonstration of the transformation of Lucknow Municipal Corporation into a model for urban governance.