[BolliBatlu]

Smart City project may give municipal bonds fresh lifeline

The finance and urban development ministries are trying to identify cities whose urban local or municipal bodies could issue such bonds to finance specific projects. Such cities must meet norms in this regard of the Securities and Exchange Board of India (Sebi) and of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

“A number of Tier-II and III cities have cleaned their books, switched to double accounting and have got audited. This puts them in a position where their bonds could get investment-grade ratings and be able to attract investors,” said a senior official.

Although officials declined to specifically name the cities whose names are being discussed, these are understood to be from Gujarat, Odisha, Andhra, Maharashtra, Tamil Nadu, Madhya Pradesh and Chhattisgarh. The first of such issuances is expected to hit the markets in five-six months.

Analysts and policy watchers say the market for such bonds has not picked up in India for various reasons, including lack of interest amongst investors, the sorry state of finances of many ULBs, shoddy accounting of the ULBs’ books, bureaucratic hurdles and lack of interest at the central and state levels, and the issue of who will guarantee the bonds.