Chennai Corporation mulls municipal bonds to fund infrastructure projects

The Greater Chennai Corporation is likely to get external financing for civic infrastructure projects by floating municipal bonds in the market. The other cities such as Hyderabad have raised finances by floating municipal bonds

The Greater Chennai Corporation is likely to get external financing for civic infrastructure projects by floating municipal bonds in the market. The other cities such as Hyderabad have raised finances by floating municipal bonds. 

“A lot of capital projects under Swachh Bharat Mission 2.0 have been proposed, including waste to energy projects and bio CNG projects. All these are under detailed project report preparation stage. It is a very initial stage to say anything concrete,” said an official. 

“Raising finances using municipal bonds is like a loan that the civic body is taking from the market using the stock exchange. If the bonds are offered in a public issue, the common people can participate and subscribe to a bond, and in a private issue, only qualified financial institutions and high net worth individuals can participate,” said an official.

According to sources, the civic officials have had talks with BSE this month for floating municipal bonds. “A few projects are under discussion whether we need to go for municipal bonds or not for such projects,” said an official.

“If you see other cities which have taken bonds for infrastructure projects, Hyderabad has frequently gone in for municipal bonds. But Tamil Nadu has a very mature infrastructure financing system. Institutions such as TUFIDCO (Tamil Nadu Urban Finance and Infrastructure Development Corporation Ltd.) and TNUIFSL (Tamil Nadu Urban Infrastructure Financial Services Limited) are providing finances at an affordable rate. Those are sufficient for fulfilling the needs of local bodies. If required additionally, definitely municipal bonds are one of the options,” said the official. 

Pointing to the fact that the municipal bond market in the country was at a nascent stage, the official said the interest rate and the coupon rate will come down as the market matures. “The rates are between 7% and 10% for municipal bonds based on the credit rating, strength of the projects and other aspects. It is a market determined rate,” said the official.

“For instance, if the GCC requires ₹300 crore for a project, the civic body will assess requirements, weigh all options and propose to the State government. The GCC cannot take loans directly from the market. The Tamil Nadu government has to permit it,” said the official.