New Delhi : In a move that will help raise funds for infrastructure projects and the government’s smart cities initiative, regulator Sebi on Sunday approved new norms for issuance and listing of municipal bonds on stock exchanges.
These bonds can be issued by the municipal authorities to the public and institutional investors, including sovereign wealth funds and pension funds from abroad, and help raise funds for urban development, Sebi Chairman U K Sinha said.
The guidelines for issuance and listing of these securities, which are very popular in the US and other Western markets and are commonly known as Muni Bonds, were approved by the Sebi’s board on Sunday.
The final norms, which would be notified in 6-8 weeks, would come with adequate safeguards and provide for disclosure requirements to be made by the prospective issuers.
Besides there would be a monitoring agency — which could be a bank or a financial institution — to keep a tab on the performance of these securities in the market.
The issuer’s contribution for each project should be at least 20 per cent of the project costs, which would be from their internal resources or grants.
The bonds would need to have a minimum tenure of three years and the issuers should not have defaulted on their repayment obligations in the last one year.
Conservative Indian investors mostly invest in fixed deposits, small saving schemes or gold. Bonds issued by municipalities having good financial track record would now be another alternative investment opportunity for them.
Such bonds would provide reasonable return with less risk, which in turn may kick start the capital markets.
In the US, Muni bonds have attracted investments totaling over USD 500 billion and are among preferred avenues for household savings.
Bangalore, Ahmedabad, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal authorities have issued such bonds.
However, there were no provisions as yet for listing and subsequent trading of muni bonds on stock exchanges in India.
