Indian companies warm up to green bonds

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Green bond issuance from India was to the tune of $1.95 billion in the September quarter, making it the fifth largest issuer in terms of size in the world for the quarter.

Green bonds are regular bonds, but issued by companies for sustainable environment-friendly projects. There are global standards on green bonds and green projects, but in India, a standard code has not been developed yet. Going forward, bankers say getting funding would be difficult from investors if the fund is not linked to an environment-friendly project, as global investors are getting averse to lending to traditional, pollution-emitting projects. 

In the quarter there were four bond issuances from India-origin companies — Greenko issued two dollar bonds totalling $1 billion ($350 million and $650 million), Rural Electrification Corp raised $450 million, and Azure Power Energy raised $500 million.

Mexico topped the list in the September quarter, with an issuance size of $4 billion. The entire amount was raised by Mexico City Airport, according to data from Climate Bonds Initiative, an organisation that works globally to mobilise green bonds. 

Indian companies and banks, however, have mostly issued these bonds in the domestic market. The first issuer of green bonds was YES Bank in February 2015. The bank raised Rs 1,000 crore that time. The first dollar green bond from India was issued by Exim Bank, raising $500 million in April of the same year. 

Traditionally, issuance from Chinese companies dominate the green bond market, but other emerging market economies are coming up fast, as dedicated investors have publicly committed to build up green bonds portfolio for a certain percentage of their portfolio. There are green bond index funds, green bond exchange traded funds, and then there are publicly committed investment proposals of billions of dollars and euros towards green bonds. 

Besides, say a senior foreign bank executive helping Indian companies tap the market, investors also get interested in the high yield offered by emerging markets such as India. India’s sovereign rating is just a notch above speculative grade and most green bond issuers have junk ratings.

Overall, the green bond market has come a long way. As per Climate Bonds data, in 2017 so far, $65.6 billion of such bonds have been issued, from about $807 million in 2007. 

The bonds have been issued by development banks and municipalities or cities, mainly, but starting 2013, the corporate sector started issuing such bonds.

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