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India’s first sovereign green bond will go to auction on Wednesday and the Indian government expects to issue its first green bonds at a 'greenium,' with yields below prevailing market rates, and has identified 400 billion rupees ($4.92 billion) in projects that can be funded with the proceeds, as per a Reuters report.

The government plans to raise 160 billion rupees through green bonds for the current fiscal ending March 31, with the first tranche of 80 billion rupees scheduled for auction on Wednesday. On Monday, the Reserve Bank of India (RBI) said there would be no FPI restrictions on these securities. The RBI will auction 40 billion rupees each of five-year and 10-year green bonds. The government's five-year 7.38% 2027 bond yield and benchmark 10-year bond yield were at 7.16% and 7.35%, respectively.

The proceeds would be used for 'green' projects such as solar power, wind and small hydro projects and other public sector projects that help reduce the economy's carbon footprint. 

This offering will be sold in 5-year and 10-year tenors via a uniform price auction on Jan. 25; a second, similar offering is set for Feb. 9. Its proceeds will be used for unspecified projects that align with India’s green bond framework.

The country does not have any domestic green-dedicated debt funds. “There is no ready mandate for domestic entities to buy green bonds and there is a need to create awareness about it," Naveen Singh, head of trading at ICICI Securities Primary Dealership Ltd told Bloomberg.

Indian companies typically issue green bonds on the offshore market, where demand has been robust. A recent $1 billion issue by the Export-Import Bank of India was oversubscribed by more than 100%.

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.

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