Financing instrument and amount
USD 26.6 million through municipal bonds
Background
The Ahmedabad Municipal Corporation (AMC) oversees civic infrastructure and administration for the city of Ahmedabad in Gujarat, India. Over the years, the AMC has gained a reputation for providing efficient public services to its residents, surpassing national averages.
In 2019, AMC sought to implement several large-scale urban infrastructure projects, including waste and water management systems and the revitalisation of the Sabarmati River. To finance these initiatives, AMC realized it needed to tap into the capital market as it could not rely solely on government transfers.
Approach
AMC decided to issue municipal bonds (i.e., debt securities with fixed maturity and interest rates) to raise funds for the planned projects. The bonds were listed on the National Stock Exchange of India with a maturity of five years and an interest rate of 8.7%.
Two underlying factors facilitated AMC’s bond issuance. The first was the central government’s Atal Mission for Rejuvenation and Urban Transformation (AMRUT) program, which was launched in 2015 to incentivise local governments to raise funds through market-based financial instruments for urban transformation projects. The second was the Securities and Exchange Board of India (SEBI)’s move to ease regulations governing the issuance of municipal bonds in 2017 to boost the municipal bond market. These included expanding the eligibility for bond issuance for municipalities and easing rules permitting foreign investment in local bonds.
Results
AMC raised USD 26.2 million for its bond issuance, which was oversubscribed by 5.42 times. The strong demand was attributed to AMC securing a favourable credit rating of AA+ from both a global credit rating agency, CRISIL, and a local credit rating agency, India Ratings.
AMC’s good credit rating for the issuance was reflective of the corporation’s strong financial health, particularly its ability to meet its obligations and repay the principal amount and interest. The corporation also had a track record of issuing bonds in the past, with this issuance being its fifth, since 1998, when it became the first municipality in Asia to raise money through public issuances.
Key Learnings
Municipal bond are useful tools for large-scale infrastructure projects.
Municipal bonds can be issued with long-term tenors, which makes them suitable for large, scale infrastructure projects.
Central governments play a pivotal role in incentivising fundraising through market-based instruments.
The AMRUT program, launched in 2015 by the central government, provided an enabling policy environment for AMC to raise funds for urban development projects through the capital market.
Legal and regulatory frameworks can promote municipal bonds as a source of financing.
Two years prior to AMC’s decision to raise funds via a bond issuance, SEBI had taken a proactive role to boost the municipal bond market by boosting the municipal bond market by streamlining bond issuance rules and allowing portfolio investors to participate in local bonds.
Local governments need to demonstrate strong financial health to attract investors.
The favorable credit ratings obtained by AMC from global and local agencies played a key role in building investor confidence and ensuring the success of the municipal bond issuance.
Sources
Sources
- Climate and Development Knowledge Network (CDKN) (2020). Ahmedabad issues municipal bonds to implement green projects. Available at: https://southasia.iclei.org/wp-content/uploads/2021/09/Ahmedabad-Green-Municipal-Bond-Case-Study-2.pdf
- Amdabad Municipal Corporation (n.d.). Ahmedabad City As India’s Best City To Live-In, In Terms Of Infrastructure. Available at: https://ahmedabadcity.gov.in/Home/AboutTheCorporation
- Business Standard (2017). Municipalities having surplus can issue Municipal bonds: Sebi. Available at: https://www.business-standard.com/article/markets/municipalities-having-surplus-can-issue-municipal-bonds-sebi-117021600356_1.html
- Ministry of Housing & Urban Affairs (2022). Status of Amrut. Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1881751
