India to enter green bond
market with $1 billion debut auction on Wednesday
India s first sovereign
green bond will go to auction Wednesday, and policy makers have laid the
groundwork to ensure a successful debut.
Authorities have promoted
the 80 billion rupee ($984 million) issue to the country s biggest domestic
asset managers, including state-run insurers and pension funds as well as
foreign investors. The insurance industry regulator will allow the bonds to
count toward insurers required infrastructure investments. Banks can use it
toward mandatory government holdings, and there s no limit for foreign buyers.
We expect strong demand
for India s first issuance of sovereign green debt from both domestic as well
as foreign portfolio investors, said Parul Mittal Sinha, head of India
financial markets at Standard Chartered Plc in Mumbai. Nomura Holdings Plc and
Barclays Plc said the same.
This offering will be
sold in 5-year and 10-year tenors via a uniform price auction on Jan. 25; a
second, similar offering is set for Feb. 9. Its proceeds will be used for
unspecified projects that align with India s green bond framework.
Together, they make a
modest trial balloon for the country s broader goals for green finance. Prime
Minister Narendra Modi has ambitious plans for renewable energy and projects
that bolster the country s resilience to extreme weather and higher
temperatures, and India has said it hopes issuing green bonds will enable it to
raise money at relatively lower costs.
That will be more
challenging. Greeniums discounted rates for environmental projects have been
shrinking globally. Thailand s sustainable bond issuance in September was
priced at a coupon 8 basis points lower than comparable Thai bonds. Bank
analysts, along with traders interviewed by Bloomberg, expect India s inaugural
sale to yield a smaller greenium of 2-3 basis points.
Part of the reason may be
a tepid reaction from the global market. The bonds will be issued under the
Fully Accessible Route, which allows unlimited holdings by foreigners, but
some foreign investors may be put off by currency risks. The Indian issue also
allows proceeds to be used for compressed natural gas in public transport,
which may limit appeal to some green investors.
Asia s third largest
economy will need to lean more on local investors, who may be unwilling to pay
extra for a green issuance. The South Asian nation doesn t have any domestic
green-dedicated debt funds. There is no ready mandate for domestic entities to
buy green bonds and there is a need to create awareness about it, said Naveen
Singh, head of trading at ICICI Securities Primary Dealership Ltd.
Indian companies
typically issue green bonds on the offshore market, where demand has been
robust. A recent $1 billion issue by the Export-Import Bank of India was
oversubscribed by more than 100%.
We expect demand from
foreign portfolio investors (FPI) to increase over time as more ESG
non-resident funds get set up with local currency mandates, and obtain FPI
license to invest in debt markets in India, StanChart s Sinha said.
If this sovereign auction
is over-subscribed and the cutoff yield materially lower than regular
government bonds, it would encourage larger green issuance next year.
The government is
testing waters by issuing a rupee green bond, said Ashhish Vaidya, head of
treasury at DBS Bank in Mumbai. It will be interesting to see whether the
global green pool of funds are willing to invest in a INR issue.
www.business-standard.com
dt. 24.01.2023