The recent SEBI move will increase the number of eligible entities for issuance of municipal bonds, said ICRA. The entities, which would become eligible are urban development authorities, water supply and sewerage boards, solid waste management entities, slum development boards, etc, it said. Moreover, special purpose vehicles under the Smart Cities Mission and state-pooled finance entities will also be eligible to issue municipal bonds.

The Securities and Exchange Board of India recently approved the second round of amendments to the SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015.

The key amendments include expansion in the scope of regulations to other entities involved in municipal functions; changes in requirements related to accounting, audit and disclosure of financial statements; modifications in the provisions pertaining to debt-servicing mechanism of the municipal bonds, and other changes. This, along with the Ministry of Housing and Urban Affairs’ extension of the incentive scheme in FY20 for the entities, would enable raising funds through municipal bonds.

According to the scheme, an entity would be eligible for an incentive of ₹13 crore for an issuance of at least ₹100 crore bond (maximum incentive of ₹26 crore for each entity). The scheme would be available to 12 entities on a first come, first served basis during FY20 (it was available to 10 entities in the previous year).

Commenting on the amendments, Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA. said, “During FY2018-19, seven urban local bodies raised ₹1,390 crore through eight municipal bond issuances.

The latest changes will further expand the investor base for municipal bonds and is likely to have a positive impact on the overall development of the domestic municipal bond market in the medium to long term.”

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