Lucknow: In another first to its credit, the Yogi Adityanath government in Uttar Pradesh has floated the first municipal bond in north India under the AMRUT scheme.
The Lucknow Municipal Corporation (LMC) successfully launched its maiden municipal bond issue of Rs 200 crore (including green shoe option) on November 13, 2020 which is being listed and will be tradeable on Bombay Stock Exchange (BSE).
According to the government spokesman, the issue was oversubscribed by 225 per cent (Rs 450 crore) and closed at a very attractive coupon rate of 8.5 per cent for a 10-year bond, which is a record, particularly in times of the Covid-19 pandemic.
The government of Uttar Pradesh is keen to encourage other local bodies in the state to emulate the example set by the Lucknow Municipal Corporation.
It is expected that the municipal corporations of Ghaziabad and then other cities such as Varanasi, Agra and Kanpur will also issue municipal bonds in the coming months.
The considerable investor interest evinced by significant over-subscription of this bond issue is indicative of improving economic environment in UP.
It follows the pioneering trend set by the Ahmedabad Municipal Corporation which issued the first municipal bond for Rs 100 crore without state government guarantee to finance infrastructure projects in January, 1998.
The government of Uttar Pradesh and the government of India have extended their full support to this issue which marks a paradigm change in urban governance and would trigger more market oriented and transparent local administration.
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 tenure of the Lucknow Municipal Corporation bond is 10 years and it is structured as a ‘strip’ bond with 7 STRRPs (A to G) and principal repayment to happen in 7 equal annual payments from the fourth year to the tenth year.
The significance of this maiden bond issued by 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 and financial management in Uttar Pradesh.
The journey of Lucknow Municipal Corporation from the time it obtained an issuer credit rating under the AMRUT scheme to the successful issuance of municipal bonds in November, 2020 has been long and arduous but extremely worthwhile in terms of the impact it has had on governance, financial and fiduciary management, capacity building of staff members and employee morale and visibility in the public domain.
