A Model For Urban Governance: Rs 200 Crore Lucknow Municipal Corporation Bonds Listed On BSE

The Rs 200 crore municipal bonds issue of the Lucknow Municipal Corporation (LMC) was listed on Bombay Stock Exchange (BSE) on Wednesday in the presence of Uttar Pradesh Chief Minister Yogi Adityanath at the Bell Ceremony.

With this, Lucknow has become the ninth city in the country to have raised municipal bonds, which has been incentivised by the Ministry of Housing and Urban Affairs under Amrut (Atal Mission for Rejuvenation and Urban Transformation).

It will help in improving financial and municipal governance, make the city move on the path of self dependence and provide necessary support for developing civic infrastructure. This will also boost Aatmanirbhar City as a part of Aatmanirbhar Bharat.

The municipal bonds which carry 8.5 per per cent interest per annum and have a tenure of 10 years were oversubscribed by 2.25 times earlier this month.

On BSE bond platform, the municipal corporation received 21 bids for Rs 450 crore, which is 4.5 times of the issue size, BSE said in a statement. The exchange further stated that the preferred choice amongst municipal corporations to raise debt as this was the eighth successful municipal bond issuance on the platform.

Out of the total 11 municipal bonds, totalling to Rs 3,690 crore, Rs 3,175 crore have been raised on BSE bond platform scaling its market share to 86 per cent, the exchange said.

The bonds issue will ensure that the LMC will get Rs 26 crore to subsidise its interest burden. This upfront incentive amount equates to reducing interest burden by 2 per cent on the municipal corporation.

LMC had successfully launched its maiden municipal bond issue on 13 November 2020 which has been listed and is tradeable on BSE.

It 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 Covid, and is reflective of the investor demand for good quality and well-structured municipal bonds.

This is a historic occasion as it is the first municipal bond issue from North India and the first from Uttar Pradesh after the launch of the AMRUT scheme. The considerable investor interest evinced by significant over-subscription of this bond issue is indicative of improving economic environment.

It follows the pioneering trend set by 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 shift in urban governance and would trigger more market oriented and transparent local administration.

The government of Uttar Pradesh is keen to encourage other local bodies in the state to emulate the example set by LMC. 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, followed by a pooled municipal bond issue from some of the smaller municipal entities in the state.

This bond issue from LMC 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 LMC bond is 10 years. 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 LMC into a model for urban governance.