Rs200-crore Lucknow Municipal Corporation bonds listed on BSE
08 December 2020
The Lucknow Municipal Corporation (LMC) on Wednesday listed municipal bonds for Rs200 crore at the Bombay Stock Exchange (BSE), becoming the nineth city to enter the market to raise funds for financing projects.
Uttar Pradesh chief minister Yogi Adityanath attended the bell ceremony at the National Stock Exchange in Mumbai in connection with the listing.
The bond issue will ensure that the LMC will get Rs?26 crore to subsidise its interest burden under the AMRUT (Atal Mission for Rejuvenation and Urban Transformation) incentive scheme provided by the ministry of housing and urban affairs, Government of India.
This upfront incentive amount equates to reducing interest burden by 2 per cent on the municipal corporation. It will help in improving financial and municipal governance, make city move on the path of self dependence and provide necessary support for developing civic infrastructure. This will also boost AatmaNirbharCity as a part of AatmaNirbharBharat, a government release stated.
Lucknow Municipal Corporation (LMC) successfully launched is maiden municipal bond issue on 13 November 2020 which has been listed today and is tradeable on the Bombay Stock Exchange. The total issue of Rs100 crore (including green shoe option of up to Rs100 crore) attracted considerable investor interest and received bids totaling Rs450 crore from 21 investors.
The 10-year bond closed at a very attractive coupon rate of 8.5 per cent, which is seen as a record, particularly in times of the pandemic and is reflective of the investor demand for good quality and well-structured municipal bonds.
Ahmedabad Municipal Corporation was the first to issue municipal bonds for Rs100 crore without state government guarantee to finance infrastructure projects in January 1998.
The Lucknow Municipal Corporaton’s bond issue is backed by government of Uttar Pradesh and Government of India. The bond issue marks a paradigm change in urban governance and would trigger more market oriented and transparent local administration. It is expected that the municipal corporations of Ghaziabad and other cities such as Varanasi, Agra and Kanpur will also issue municipal bonds in the coming months, followed by a pooled municipal bond issue from some of the smaller municipal entities in the state.
This bond issue from Lucknow Municipal Corporation is rated ‘AA’ by India Ratings and ‘AA (CE)’ by Brickwork Ratings. The proceeds of the issue are proposed to be invested in a water supply project being implemented under AMRUT scheme of the Government of India and a housing project.
The 10-year bond is structured as a ‘strip’ bond with 7 STRRPs (A to G) with principal repayment in 7 equal annual payments from the fourth year to the tenth year. In addition to asset cover, a structured payment mechanism has been put in place to ensure timely payment of both principal and interest obligations.
The significance of this maiden bond issue from an urban local body in Uttar Pradesh is not merely the quantum of resources raised for investments in urban infrastructure but a demonstration of the transformation of Lucknow Municipal Corporation into a model for urban governance, the release adds.