MUMBAI: Vadodara Municipal Corporation (VMC) is preparing to tap retail investors with what is expected to be India's first blue bond and the country's first public issue of blue municipal bonds, seeking to raise up to ₹200 crore by July-August, according to four people aware of the matter.
The Gujarat civic body is planning a five- to seven-year bond, with proceeds earmarked for water-management projects.
“The proceeds from the proposed blue bond issue will be utilized for water management projects,” Santosh Tiwari, chief financial officer of Vadodara Municipal Corporation, said, confirming plans for the issuance.
Blue bonds are a subset of green bonds, with proceeds dedicated to water-related projects such as water supply, wastewater treatment, conservation and sustainable management of aquatic resources. Green bonds, by contrast, finance a broader range of environmental projects, including renewable energy, waste management and pollution control.
“It will be a certified bond as per international norms and market standards. There will be proper certification, post-issue compliances and an independent verifier,” Tiwari said.
AK Capital Services and Tipsons Group are the lead managers for the proposed issue. Tiwari said VMC expects to file its offer document by the end of June, after which it will begin roadshows and investor outreach programmes.
While the coupon has yet to be finalized, merchant bankers expect the civic body to price the issue aggressively.
“Vadodara will go aggressive in terms of pricing and we could expect around 8.50% or under 8.25% but that will again depend on market conditions,” a person aware of the matter said.
The issue is being planned at a time when borrowing costs in the bond market remain elevated. The yield on India's benchmark 10-year government bond has risen 34 basis points since conflict erupted in West Asia on 28 February and is currently trading at 7.0%, making fundraising more expensive for issuers.
The proposed issue comes as blue bonds begin to emerge as a potential new segment of India’s sustainable-finance market. Days ago, Reuters reported that state-owned maritime lender Sagarmala Finance Corporation was exploring a blue bond issuance of up to ₹1,000 crore.
Vadodara, however, appears poised to reach the market first.
“Vadodara will come before that and will be the first one to launch a blue bond in India as they are very keen,” a second person aware of the development said, referring to Sagarmala’s proposed issuance.
Municipal momentum
The Gujarat civic body last tapped the debt market in March 2024, raising ₹100 crore through a five-year green bond carrying a semi-annual coupon of 7.9%.
The blue bond would follow public municipal bond offerings by Indore, Surat and Nashik, which were structured as green bonds and open to retail investors, and comes amid a broader revival in municipal bond fundraising.
Several urban local bodies, including Ahmedabad and Nashik, are preparing bond offerings, according to the second person.
Among the largest proposed issuances is one by Brihanmumbai Municipal Corporation (BMC), which plans to raise up to ₹10,000 crore and is expected to tap the market by September, the person said.
“BMC has a tender of ₹9,500 crore and they are in the process of shortlisting merchant bankers and by September they should come,” the second person said.
Ujjain is working on a proposed “temple bond”, while municipal corporations including Patna, Navi Mumbai, Nagpur and Kalyan-Dombivli are at various stages of preparation, with offer filings expected by the end of this month, the person added.
In Karnataka, five municipal bodies in Bengaluru are also exploring market borrowings and have appointed merchant bankers.
The renewed activity comes as municipalities await formal guidelines from the government on how funds raised under a new incentive scheme can be deployed.
On 6 May, Mint reported that urban local bodies planning to access the debt market were waiting for clarity on the scheme.
In the Union Budget for 2026-27, the government announced a ₹100 crore incentive for municipal bond issuances exceeding ₹1,000 crore. The absence of detailed deployment guidelines, however, has created uncertainty around the productivity of funds and municipalities’ repayment capacity.
“The government has announced incentives but these municipalities don’t have that kind of capability yet. Their balance sheets are not that strong to raise ₹1,000 crore. They want to run a healthy balance sheet,” the first person aware of the blue bond issue said.
In FY26, 13 municipalities raised ₹1,756 crore through bonds, compared with only one civic body that raised ₹100 crore in FY25, according to Icra data.