According to two government officials, the Indian government has identified 400 billion rupees ($4.92 billion) in projects (greenium) that may be supported with the revenues and expect to issue its first green bonds at a ‘greenium,’ with yields below current market rates.
For the current fiscal year that ends on March 31, the government intends to raise 160 billion rupees through green bonds. The first tranche, worth 80 billion rupees, is slated for auction on Wednesday.
The money would go toward “green” initiatives that assist lower the carbon footprint of the economy, including solar, wind, and small hydropower projects.
A green premium, or “greenium,” on pricing is what the government anticipates will cause yields on sovereign bonds to drop 5–10 basis points (bps) as a result of the enthusiastic response and interest from both international and local investors.
One of the two people added, “The expectation of a green premium is in line with ‘greenium’ that issuers have globally.”
The top 50 foreign portfolio investors (FPI) met with India’s Ministry of Finance in December, and at that meeting, investors expressed interest. Those with green mandates also inquired about domestic registration requirements, according to the sources.
The Reserve Bank of India (RBI) said on Monday that there would be no limits on FPI purchases of these securities.
An email from Reuters requesting comments received no response from the Ministry of Finance.
“Due to the regulations requiring the purchase of these securities, green bonds should be more expensive. Because of the nature, the outstanding (amount) would initially be fairly tiny, and we might observe some aggressive demand “said Ashish Agrawal, head of Asia for Barclays’ FX and EM macro strategy research.
Five-year and ten-year green bonds, each worth 40 billion rupees, will be auctioned out by the RBI. The benchmark 10-year bond rate was 7.35%, while the government’s five-year bond yield was 7.38% for 2027.
According to Ritesh Bhusari, deputy general manager for treasury at the private sector lender South Indian Bank, demand from domestic banks and mutual funds may be minimal given that these organizations do not have a distinct green mandate.
Due to the tiny number of securities being offered, he continued, “These securities may also be illiquid in the beginning.”
According to the sources, the projects mentioned are more than 2.5 times what is planned to be raised for the current fiscal year.
If the chosen initiatives are unable to use the revenues this year, the money can be redistributed to other projects, they noted.
IiAS, a proxy advisory service, stated last week that although the bonds adhere to green bond criteria, it is advisable to increase openness regarding project implementation timetables and to examine the social and environmental risks of particular projects.
The CAG (Comptroller and Auditor General) should oversee the appointment of an external auditor who will oversee the use of the profits from green bonds.
Urban development, renewable energy, transportation, and other sectors have projects that have been identified and categorized as “dark green” and “medium green.”
Priority and ratings are used to determine the categories in accordance with a universal framework.
According to the structure made public by the government in November, interest and principal payments on the bonds are not dependent on how well the projects function and investors don’t take any risks associated with the projects.