Sebi allows municipalities to issue bonds

Securities and Exchange Board of India (Sebi) has decided to amend financial criteria for municipalities to issue bonds, in a move to give a fresh boost to the market for bonds.

The Sebi board, which met in Jaipur, gave its nod to municipalities to issue bonds for financing projects, depending on their ability to pay back.

Municipalities having a surplus in their books in any of the three immediately preceding financial years will be eligible to issue bonds. The eligibility would also be decided by financial criteria specified by Sebi from time to time.

The decision also comes against the backdrop of Prime Minister Narendra Modi pitching for boosting the municipal bonds market last month.

Sebi, however, suggested enhanced disclosure requirements for issuance of municipal bonds and non-convertible redeemable preference shares as the regulator looks to help retail investors take informed decisions.

The proposed disclosure framework for these instruments include having a 'Risk-o-Meter' that would better explain the low to high-risk credit ratings given to them.

Earlier this month, Sebi floated a consultation paper on enhanced disclosure framework for public issuance of non-convertible bonds. Now, municipal bonds, also known as muni bonds and non-convertible redeemable preference shares have been included.

Under the proposal, restrictions on investment amount has been suggested in case of retail investor and allocation of securities to such investors in base issue size. Besides, Sebi has suggested removing the minimum credit rating requirement.

Issuing the draft papers, Sebi has proposed to enhance disclosure requirements for issuances of such securities and simultaneously introduce Risk-o-Meter.

Sebi has sought comments from public till 29 January on the proposals and final regulation would be put in place after taking into consideration views of all the stakeholders.