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MUMBAI : The maiden sovereign green bond issuanced worth 8000 crore was fully subscribed on Wednesday, at a better than expected yield as local investors lapped up the issuance.

The Reserve Bank of India sold 4000 crore of five-year bonds at a coupon rate of 7.10%, five basis points below the sovereign yield of similar tenure. Another 4000 crore of 10-year bonds were sold at 7.29%, six basis points below comparable government securities.

The bids received were worth more than four times the amount on offer, with the five-year bond sold to 32 investors and the 10-year to 57 investors, according to data released by RBI on Wednesday.

 “It (sovereign green bonds) was sold well at about 5 bps lower than normal bonds yield. It has all the features of gsec plus a green bonds tag. Traders have taken it for a forthcoming demand to come up and make some profits. Eventually FPI who have compulsions to make green bonds investments shall be participating in due course," said Ajay Manglunia, managing director, JM Financial.

The lower yields are indicative of the demand for these bonds, the proceeds from which will be deployed in public sector projects to reduce carbon mission. Prime Minister Narendra Modi has already laid out plans to zero out greenhouse emissions by 2070.  

Traders say the maiden issue largely saw interest from domestic players, but demand from global investors will pick up going forward. While local banks and mutual funds do not have a specific mandate to invest in these green bonds, they can these at par with other sovereign bonds. Meanwhile, insurance companies are allowed to classify these as infrastructure investments.

Traders also believe that these bonds may not result in substantial reduction in savings for the government or reduction in borrowing limit.  

 “If the yield continues to be around 5 bps, then there will not be much reduction in cost. Besides, these green bonds are for a specific purpose. Keeping that in mind, we don’t see brisk trading in the secondary market, like in the case of government securities," said an investment manager at a fund house

The central government had announced the plan to issue sovereign green bonds in the budget of fiscal year 2023 as India attempts to tap the domestic debt market to finance green infrastructure projects.

The government had released the sovereign green bonds framework in November last year. A green finance working committee headed by the Chief Economic Adviser V Anantha Nageswaran will select public sector projects for green financing from those submitted by government departments.

 

ABOUT THE AUTHOR

Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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