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Informist, Monday, Sep 9, 2024

 

--Fin min source: May issue shorter tenor green bonds in Oct-Mar

--Fin min source: May keep green bond auction size smaller in Oct-Mar

 

By Krity Ambey

 

NEW DELHI – Faced with lacklustre demand for its green bond offerings in Apr-Sep, the government is considering issuing these papers in shorter tenors and smaller auction sizes in the second half of the current financial year, a finance ministry official said.

 

So far in 2024-25, the government has auctioned 10-year green bonds worth 60 bln rupees each on two occasions. While it ended up rejecting all bids at the first auction in May, it raised only 16.97 bln rupees through the instrument of the notified 60 bln rupees, in the second auction in August, due to unfavourable pricing offered by investors.

 

However, the government expects to get a better response from investors once green bonds start getting traded in the secondary market at India's International Financial Services Centre located in Gujarat International Financial Tec-City, or GIFT City, the official said. 

 

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. But unlike many foreign investors, Indian investors lack incentives to price such bonds aggressively, which has led to only modest greeniums on the government's green bond issuances so far.

 

The government has so far raised 376.97 bln rupees through green securities since their launch in 2022-23 (Apr-Mar) to finance environment-friendly projects. Besides the maiden issuance, which received a greenium of 6 basis points, subsequent auctions of 5- and 10-year sovereign green bonds have only achieved 1-5 bps of greenium. 

 

Listing green bonds at GIFT City would help the government attract more demand from foreign investors. Since they typically prefer buying shorter maturity papers, the government hopes to get a better deal by shortening the tenor of its green bond issuances.

 

In August, the Reserve Bank of India notified the scheme for trading and settlement of green gilts in GIFT-IFSC. As per the scheme, eligible investors can undertake secondary market transactions of these securities in IFSC. The eligible investors under the scheme include foreign investors, international banking units of foreign banks that do not have branch licenced to undertake business in India, and funds set up by domestic entities that come under the regulation of the International Financial Services Centres Authority.

 

Gandhinagar's GIFT-IFSC is a deemed foreign jurisdiction set up by the government to boost foreign investments in Indian assets. The government allows tax concessions on business activity as well as on investments in asset trading in the jurisdiction.

 

The interest on debt instruments trading at GIFT-IFSC is taxed at 9%. However, outside of IFSC in the domestic market, such income of foreign portfolio investors is taxed at India’s treaty rate with the country where the investor is based or at the local withholding tax rate of 20%, whichever is lower.  End

 

Edited by Akul Nishant Akhoury

 

 

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