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Informist, Monday, Mar. 17, 2025

 

--Fin min source: May stop issuing green bond if greenium doesn't improve

--Fin min source: Will wait, monitor mkt interest in green bonds for 2-3 yrs

--Fin min source: Will take call on discontinuing green bonds in 2-3 yrs

--Fin min source: Mkt response on green bonds has been rather disappointing

--Fin min source: Had expected greenium of at least 10 bps on green bonds

By Krity Ambey and Kuldeep Singh

 

NEW DELHI – Disappointed by the less than enthusiastic response to its green bond offerings, the government may eventually give up on the instrument if the greenium, or green premium, on these securities doesn't improve in the next two to three years, a finance ministry official said.

 

When the government first started issuing green bonds in 2022-23 (Apr-Mar), it had expected to receive a greenium of at least 10 basis points, the official said. But the market response so far has been rather disappointing, the official added. "We will try for another two to three years, then we will take a call if it is prudent way of fund-raising or not."

 

Globally, green bonds are priced at yields lower 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 these bonds aggressively, which has led to only modest to negligible greenium on the sovereign green bonds issued so far.

 

In fact, at the latest green bond auction in February, the government had to shell out a higher yield than that on its conventional bonds. The Reserve Bank of India auctioned the 6.98%, 2054 green bond to raise INR 50 billion, and accepted a cut-off yield of 7.11%, which was 2 basis points higher than the prevailing yield on the 30-year benchmark 7.09%, 2054 bond in the secondary market.   

 

The government has raised INR 576.97 billion through green securities since FY23, and the maximum greenium it has achieved so far is 6 basis points, which was at the maiden issuance. Subsequently, the greenium has been in the range of 1-5 basis points. 

 

In FY25, the government has raised INR 216.97 billion through green bonds, out of which INR 200 bln was in the second half, thanks to the devolvement of the securities on primary dealers at two out of four auctions. In Apr-Sept, the government raised only INR 16.97 billion, against the INR 120 billion indicated in the borrowing calendar, as the RBI rejected all bids at the first green bond auction in May, and raised only INR 16.97 billion through the instrument in August, due to unfavourable pricing offered by investors. 

 

The government is likely to notify the green bond auctions for FY26 in the last week of March, when it releases the borrowing calendar for the first half of the fiscal year. 

 

The government uses proceeds from green bonds to finance its green projects that fall within the categories delineated in the green bond framework. The finance ministry had formulated a framework for the introduction of green bonds after much deliberation among various departments, as well as with Norway-based second party opinion provider CICERO.  End 

 

Edited by Avishek Dutta

 

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