The Pune Municipal Corporation (PMC) is planning a bond offering of R2,300 crore, in what will be the country’s largest municipal bond issue till date. The Ahmedabad Municipal Corporation (AMC) also proposes to float bonds but for a much smaller amount of R200 crore. Pune, the second-largest corporation in Maharashtra, earns the bulk of its revenues from property taxes and local body taxes which have risen sharply in recent years. The PMC issue has not been guaranteed by the Maharashtra government.
Only a handful of municipalities are rated double A and above. Jayanta Roy, senior V-P at ratings agency ICRA, says that due to the push from the Smart Cities and Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programmes, there is an increasing trend of urban local bodies (ULBs) getting themselves rated. PMC’s revenue surplus rose 18.5% to R2,000 crore in 2015-16 while the operatingThe civic body has also asked it be allowed to disclose mandatory information either on a half-yearly or annual basis rather than on a quarterly basis, as is the norm.
In the two decades since 1997, close to 30 municipalities have raised a total of R1,353 crore via taxable bonds, tax-free bonds and pooled financing. Typically these investors in these instruments are institutions including insurers, such as Life Insurance Corporation, public sector banks and a couple mutual funds. The largest of the offerings has been Bangalore Municipal Corporation’s R125-crore bond issue in 1997 which was guaranteed by the state government at that time. For Ahmedabad, this would be the fifth time the city’s civic body is hitting the bond markets. Its first offering was for R100 crore, without a state government guarantee, in January 1998.
Since then, other cities have accessed the capital markets through municipal bonds ( without guarantee) including Nashik, Nagpur, Ludhiana, and Madurai. In most cases, the proceeds have been used to fund water and sewage schemes or road projects. The last issuance was done by Greater Visakhapatnam Municipal Corporation for R30 crore in 2010. “Rating agencies are hamstrung by the absence of audited accounts but some cities do enjoy sound credit profiles and should be in a position to raise money,” Roy said.
PMC’s issue will be privately placed with both overseas and domestic investors. PMC has a long-term credit rating of ‘AA+’. AMC is rated ‘AA’. PMC plans to use the funds for a 24*7 water supply project for the city while AMC has also identified an urban infrastructure project. According to sources, in a joint meeting called by the ministry of urban Development and the ministry of economic affairs on February 6, besides Pune and Ahmedabad, the municipalities of Jaipur, Kakinada and a few others have also been asked to prepare for bond offerings and submit their plans for the same in the next 15-20 days.