Lucknow Municipal Corporation's bonds debut on BSE, oversubscribed by 250%

Topics Bonds

People walk past the Bombay Stock Exchange (BSE) building in Mumbai. Photo: Reuters
The bonds worth Rs 200 crore of Lucknow Municipal Corporation (LMC) have been oversubscribed by 250 per cent on its debut at the Bombay Stock Exchange (BSE) on Friday. The municipal bonds floated by the LMC with 10 year tenure offers 8.5 per cent interest.

“The successful launch of the bonds at the BSE is a great instrument of paradigm change in urban governance,” UP additional chief secretary, information and MSME, Navneet Sehgal said.

The bond is a debt security issued by a municipality to finance capital expenditure, while the investors get payments on predetermined rate of interest over a stipulated time period. The funds raised by the LMC from these bonds will be invested in various infrastructure projects, including housing, in the state capital.

The decision to raise funds from the debt instruments was taken under the flagship Smart Cities Mission of the Centre to expand the financial pool of the respective municipal bodies for launching self sustaining infra and civil projects.

Close on the heels of Indore Municipal Corporation (IMC) in Madhya Pradesh listing its municipal bonds on National Stock Exchange (NSE), the Yogi Adityanath cabinet had last year approved the proposal of raising Rs 200 crore and Rs 150 crore respectively by the Lucknow and Ghaziabad municipal corporations.

Lucknow and Ghaziabad cities had received A- credit rating in 2016-17 and emerged better placed to pursue debt market for raising funds under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) compared to its state peers, including Varanasi, Kanpur etc.

Of the 17 municipal corporations in UP, Lucknow and Ghaziabad are the largest with annual budget of nearly Rs 2,000 crore each.

Meanwhile, the Adityanath government had also asked other municipal corporations and development authorities to get credit ratings from designated agencies for prospective floating of bonds. Cities like Kanpur and Varanasi are also expected to expedite their respective bond market plans once Lucknow and Ghaziabad led by example.

In October 2019, the state government had even allowed the participation of retail investors in the auction of state government bonds through registered aggregators and facilitators, such as stock exchanges. Normally, government bonds/securities are issued through a competitive bidding process conducted by the Reserve Bank of India (RBI) with primary participants comprising banks, primary dealers and other financial institutions.

However, to encourage retail participation in such action, 5 per cent of the notified amount in each auction has been reserved by RBI for retail investors through a non-competitive bidding.

Besides, the proposal of the state finance department to allow registered stock exchanges to act as facilitators/aggregators on the behalf of scores of retail investors looking to invest in government bonds through the non-competitive route was also cleared by the Adityanath cabinet.

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