Mumbai: Pune sold nearly Rs 200 crore in 10-year bonds on Monday, as cities in Asia's third-largest economy look to tap investors for the first time in a decade to finance infrastructure projects.
Though small, the issuance is a key first step in India's plan to revive a municipal bond market that saw its last sale in 2007. The funds raised will help pay for its ambitious "Smart Cities" project that aims to modernise 100 cities by 2020, including by improving water supply and transportation.
Pune Municipal Corp sold the debt at 7.59 percent, raising Rs 200 crore, SBI Capital Markets, the sole arranger, said. That compared with around 7.40 percent for a similar maturity bond from Maharashtra state.
Although India is planning to spend up to Rs 4,800 crore in its Smart Cities project, it needs cities such as Pune to raise up to Rs 7,500 crore from bond investors.
Subodh Rai, senior director and head analytics at CRISIL Ratings, said it was important for India to develop its municipal bond market.
India has seen only Rs 1,100 crore worth of municipal bond issuance over the previous two decades, according to think tank Pahle India Foundation, which estimates only 1 percent of urban bodies' requirements are funded by municipal bonds compared to around 10 pct in the United States.
But many challenges remain, with bankers and analysts warning most cities in India typically have antiquated or opaque accounting methods, while infrastructure projects suffer from frequent delays or cost overruns that can jeopardise the ability to pay bondholders.
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