India is set to debut in the green bond market on January 25 with the auction of the first sovereign green bond. For the current fiscal year that ends on March 31, the government intends to raise Rs 16,000 crore through green bonds. The first allotment is worth Rs 8,000 crore. The money raised would go toward “green” initiatives that assist lower the carbon footprint of the economy, including solar, wind, and small hydropower projects.
According to a Bloomberg report, analysts expect strong demand for India’s first issuance of sovereign green debt. Parul Mittal Sinha, head of India financial markets at Standard Chartered Plc in Mumbai told Bloomberg, “We expect strong demand for India’s first issuance of sovereign green debt from both domestic as well as foreign portfolio investors.”
The Reserve Bank of India (RBI) will auction sovereign green bonds worth Rs 16,000 crore in two parts. The Ministry of Finance has announced that the RBI will auction 5-year and 10-year green bonds worth Rs 4,000 crore each on 25 January and on 9 February, and this would be a uniform price auction.
However, According to the report, Greeniums have been shrinking globally. The ‘Greenium’, or green premium, refers to pricing benefits based on the logic that investors are willing to pay extra or accept lower yields in exchange for sustainable impact.
Thailand’s September sustainable bond offering had a coupon that was 8 basis points less than that of comparable Thai bonds. Bank experts and dealers questioned by Bloomberg anticipate that India’s first sale will result in a lesser greenium of 2-4 basis points. One of the reason may be a tepid reaction from the global market.
Although the “Fully Accessible Route,” which permits unrestricted holdings by foreign investors, will be used to issue the bonds, some overseas investors may be turned off by the possibility of currency risk, the report says. The report says, the government will have to lean more on local investors, who may be unwilling to pay extra for a green issuance.
“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.
Green bonds are primarily used by Indian businesses in the international market, where demand has been strong. The Export-Import Bank of India recently issued a $1 billion bond that had a more than 100 per cent oversubscription.
“We expect demand from foreign portfolio investors (FPI) to increase over time as more ESG non-resident funds get set up with local currency mandates, and obtain FPI license to invest in debt markets in India,” Parul Mittal Sinha said.