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Informist, Friday, Aug 2, 2024

 

--Fin min source: May reject green bond auction bids if no greenium

--CONTEXT: Govt set to raise 60 bln rupees through green bonds today

--Fin min source: Cancelled green bond sale in May to set precedent

By Krity Ambey and Sagar Sen

 

NEW DELHI – The government may reject bids at the green bond auction today if it does not receive any 'greenium' on the paper, a senior finance ministry official said. The government is set to raise 60 bln rupees through 10-year green bonds today.

 

"We have already set a precedent in May," the official told Informist. "If it is expensive, it does not make sense."

 

At the previous auction of a green bond on May 31, the Reserve Bank of India rejected all bids for 60 bln rupees worth of a new 10-year green paper as the government did not want to pay a yield higher than on the 10-year benchmark bond.

 

Globally, green bonds are typically priced at lower yields than conventional bonds, and the difference between the yields is known as 'greenium'. Investors tend to demand lower yields on green securities because such investments count towards their environmental, social and governance-related investment goals. However, the government's green bond offerings so far have attracted only modest greeniums, as Indian investors lack incentives to price such bonds aggressively.

 

The 10-year 7.10%, 2034 gilt closed at 101.27 rupees, or 6.92% yield on Thursday. 

 

"We have conveyed to the investors that we were not happy with the bids that were placed in the auction in May. The expectation is that the bids will be better this time," the official said.

 

However, there is no plan to junk the issuance of green bonds in the future, another official said. "We have not given up on the idea."  

 

This is the first time that the government is auctioning green bonds in the first half of a fiscal year ever since it started issuing green papers in 2022-23 (Apr-Mar). In 2023-24, the government had raised 200 bln rupees through sovereign green bonds of various tenures. Of the total, it had raised 50 bln rupees through five-year bonds, 50 bln rupees through 10-year bonds, and 100 bln rupees through 30-year papers.

 

For the issuance, the government expects a better 'greenium' – a green premium from investors due to the bond's impact on sustainability – however marginal. Other than the maiden issuance in 2022-23, which got a greenium of 6 basis points, subsequent auctions of 5- and 10-year sovereign green bonds have only achieved 1-5 bps of greenium.

 

In a post-Budget interview with Informist, Economic Affairs Secretary Ajay Seth had said that green bonds were introduced because there was a set of investors that was in a position to offer finer rates if investments were used for a particular cause.  End

 

Edited by Avishek Dutta

 

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