Security and Exchange Board of India (SEBI) Board on 22 March 2015 approved the SEBI (Issue and Listing of Debt Securities by Municipality) Regulations, 2015. The regulations will enable the resources starved municipalities across the country to mobilise financial resources from capital market.
The regulations provide for public issuance and listing of privately placed municipal bonds and also provides for disclosure requirements to be made by the prospective issuers.
Till now, municipalities were denied permission to list themselves in stock exchanges and conduct trade in bonds issued by them.
New norms for listing and trading of municipal bonds
• An issuer making a public issue shall only issue revenue bonds. In case of private placements, an issuer may issue general obligation bonds or revenue bonds
• Issuer’s contribution for each project shall not be less than 20 percent of the project costs, which shall be contributed from their internal resources or grants
• Mandatory credit rating, which has to be investment grade rating in case of public issuances
• The tenure of these bonds will be of 3 years
• Municipality should not have defaulted in repayment of debt securities or loans obtained from Banks/Financial Institutions, during the previous 365 days
• Municipality should not have had negative net worth in any of the last three preceding financial years
• Banks or Financial Institutions will be appointed as monetary agencies who inter-alia will prepare periodic reports
History of Municipal Bonds in India
Municipal Bonds have been issued by various municipal authorities in the country, the total funds raised through them stand at only about 1353 crore rupees because of their non-tradability.
The Bangalore Municipal Corporation was the first municipal corporation in the country to issue a municipal bond of 125 crore rupees with a state guarantee in 1997.
The Ahmadabad Municipal Corporation (AMC) issued the first municipal bonds in the country without state government guarantee in January 1998 for financing infrastructure projects in the city. AMC raised 100 crore rupees through its public issue.
Till now, only Hyderabad, Visakhapatnam, Chennai, Nashik and Nagpur municipal authorities have issued such bonds.
What: Issued by the SEBI
When: 22 March 2015