The Rs. 200 crore municipal bond of the Lucknow Municipal Corporation (LMC) was listed at Bombay Stock Exchange and in coming months four more cities – Ghaziabad, Varanasi, Agra and Kanpur will be listed.
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 Rs. 26 crores 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 the city move on the path of self dependence and provide necessary support for developing civic infrastructure. This will also boost Aatmanirbhar City as a part of Aatmanirbhar Bharat.
The total issue of Rs. 100 crores (including green shoe option of up to Rs. 100 crores) attracted considerable investor interest and received bids totaling to Rs. 450 crores from 21 investors. 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-19 and is reflective of the investor demand for good quality and well-structured municipal bonds.
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.