A $200-billion spending push by India to boost renewable power output will help drive a global surge in issuance of green bonds, according to a unit of Citigroup Inc, the country's largest arranger of offshore note transactions in 2016.
With governments around the world last year agreeing to a new global climate accord, Prime Minister Narendra Modi's administration has pledged to foster less carbon-intensive economic production in the world's second-most populous nation.
It plans to boost renewable energy capacity to 175 gigawatts by 2022 from a current level of just 37 gigawatts, and is aiming to source at least 40 per cent of its energy mix from clean sources such as wind and solar by 2030.
According to a Bloomberg report, bond buyers are eager to capitalise on climate-related initiatives and Moody's Investors Service predicted in April that global green note issuance could climb to almost $70 billion this year from $42.4 billion in 2015. An increase in sales from Indian issuers could also help spur the dollar-bond market as a whole, which has been weighed down this year by borrowers' preference for the cheaper funding available through loans.
''India is spending so much money on renewable energy and improving energy efficiency, it makes a lot of sense to start accessing bonds in the green format,'' said Neville Fernandes, head of debt capital markets origination at Citigroup's local unit in Mumbai. ''You will see this funding theme play out in the financing markets, as sophisticated issuers start tapping this market more aggressively.''
NTPC Ltd., the country's largest power producer, has appointed bankers for its first ever green bond issue, while Axis Bank Ltd. has sought shareholder approval to raise an additional Rs35,000 crore ($5.2 billion) through various instruments, including the environmentally-linked notes. In May, the lender became the third Indian green bond issuer, raising $500 million from overseas investors in an transaction that was oversubscribed 2.2 times.
State-run Energy Efficiency Services Ltd said last week that it's looking to issue green bonds overseas and may raise as much as $100 million in its first offshore bond sale.
''There is a separate pool of liquidity that can only be used to invest in green bonds,''' said Fernandes. ''This demand becomes sticky because there is a finite list of eligible green projects.''
India's plan to replace energy-intensive appliances such as light bulbs and irrigation pumps with more efficient designs is expected to save as much as Rs60,000 crore a year by 2019.
Global issuance of green bonds in the first quarter of 2016 reached $16.9 billion, nearly three times the amount issued in the equivalent period a year earlier, according to Moody's.
Mumbai-based Yes Bank Ltd. plans to sell £330 million of green bonds by December 2016, according to an exchange filing in November.
''India has a growing need to finance its renewable energy projects and green bonds can play a vital role in providing funds,'' Jaideep Iyer, group president at Yes Bank, told Bloomberg. ''Pricing on these notes will improve going forward as there are large funds available globally whose mandate is to invest in energy-efficient projects.''
Axis Bank priced its five-year securities to yield 160 basis points over similar Treasuries, Bloomberg-compiled data show. That compares with an average 204 basis points on investment-grade debt from Indian companies, according to Bank of America Merrill Lynch indexes. Axis Bank's notes are ranked BBB-, the lowest investment grade, and have returned 1.7 percent since issuance in May.
Yes Bank became the country's first-ever green bond issuer in February 2015, when it raised Rs1,000 crore in a local currency transaction, and sold a further Rs315 crore of securities in August through a private deal, according to data compiled by Bloomberg. The first such deal in greenbacks was a $500 million offering from Export-Import Bank of India in March last year.
''We expect India, along with China, to be a prominent driver of regional issuance in coming years, given ambitious targets on building out renewable energy capacity,'' said Henry Shilling, a senior vice president at Moody's. ''India has recently adopted guidelines for green bond issuance, providing support for this source of borrowing. The evolving disclosure and transparency practices are factors that are likely to influence demand.''