Rupee-denominated green bond issuances by Indian corporates are expected to pick up in FY24 as pricing reference is now available, with the government kickstarting issuance of sovereign green bonds (SGrBs).
Green bond issuances could touch 8-10 per cent of overall corporate bonds issuances in India in a couple of years. This, as India Inc and public sector enterprises are seen tapping green financing at relatively lower cost to set up projects in areas such as renewable energy, clean transportation, water and waste management/recycling, green buildings, rooftop solar, electric vehicles, and EV charging infrastructure, among others, according to experts.
“Around 76 per cent of the green bonds issued in India since 2015 were denominated in US dollar... green bonds constituted only 0.7 per cent of all the bonds issued in India since 2018,” according to a study in RBI’s January 2021 monthly bulletin.
Ajay Manglunia, MD & Head, Investment Grade Group, JM Financial, expects the green bond market to build up, with some of the corporates floating them in FY24, in the wake of enthusiastic investor response to the maiden SGrB issuance on January 25. “Green bond issuance could account for 2-3 per cent of overall corporate bond issuances in FY24. This could go up to 8-10 per cent in a couple of years,” as per Manglunia’s assessment.
India Inc, on an average, issues bonds aggregating ₹8-10-lakh crore a year. “There is a huge market for green bonds outside India. So, if the domestic market for these bonds is developed, it will attract foreign capital,” said the treasury head of a public sector bank.
The maiden issuance of SGrBs aggregating ₹8,000 crore on January 25 received good response, with the five-year paper and the 10-year paper getting subscriptions of about three times and five times, respectively, the notified amount (of ₹4,000 crore each).
Both papers were sold at a cutoff yield that was fairly lower (5-6 basis points) than the corresponding vanilla Government security on-the-run. One more auction of SGrBs aggregating ₹8,000 crore is scheduled on February 9.
RK Gurumurthy, Head-Treasury, Dhanlaxmi Bank, said RBI has made SGrBs accessible under the fully accessible route (for investments by non-residents). A stable currency will certainly attract a fair amount of interest by foreign portfolio investors, he added.
Experts say if the initial success of SGrBs is any indication, it could give a fillip to green bond issuances by India Inc.
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