Comments
Experts have called for market making in municipal bonds for it to succeed as a new instrument. Market makers provide quotations at all times during trading hours.
So far, response to municipal bonds has not been encouraging.
A SEBI discussion paper issued in December pegs the total bond issuance by municipalities at ₹1,353 crore. Of this, ₹445 crore is taxable bonds, ₹649.5 crore tax-free bonds and ₹258.6 crore of pooled finance bonds.
In the past, municipalities of Ahmedabad, Hyderabad (Deccan), Nashik, Visakhapatnam, Chennai and Nagpur have issued tax-free bonds to fund various utility projects.
Murthy Nagarajan, Head - Fixed Income, Quantum Mutual Fund, said, “These bonds should be available for pension funds to invest and liquidity has to be created, besides a yield that is at least 1.5 per cent above the benchmark 10-year paper so that investors are attracted.”
Municipalities should be allowed to raise the prices of utilities created through the funds raised by the issuances. Tax benefits, if any, given to such projects, should be an additional assistance, he added.
Meeting liabilityThose in the trade also said the liability should be serviced by the municipalities through money generated by the investment.
Prithvi Haldea, Founder Chairman, Prime Database, said, “Civic services have to be paid for by the users. Globally, fund flows from utilities are used to service the debt, which pay interest and redemptions. Some state support may be given but not in full.”
Experts also feel that municipalities are ill-prepared to deal with the investor community.
Atul Joshi, MD & CEO, India Ratings and Research, a Fitch group company, says, “Very few municipalities have the back-end infrastructure ready to service a capital market instrument, besides other things such as double entry book-keeping. In addition they do not have draft prospectuses ready for issuance, besides systems to monitor cash flows that would be used to service the bond.”
Referring to the paradoxical situation on municipalities, Joshi said that the highly rated (AA) ones such as Delhi, Mumbai and Navi Mumbai whose issuances would be lapped up by investors are cash-rich and do not need to raise money, while the ones which need money don’t have the ratings.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.