New Delhi: To help the government's 'smart cities' programme, capital markets regulator Sebi on Wednesday notified new norms for listing and trading of municipal bonds on stock exchanges.
The move would allow authorities to mop-up funds, including for setting up smart cities, by raising money from the public and institutional investors.
Under the new norms, the municipal authorities would need to have a strong financial track record and such bonds would be listed on stock exchanges.
Conservative Indian investors mostly invest in fixed deposits, small saving schemes or gold.
Now, bonds issued by municipalities having good financial track record would be another alternative investment opportunity for them. Such bonds would provide reasonable return with less risk, which in turn may accelerate the capital markets.
Commonly known as 'muni bonds', these investment products are very popular among investors in many developed nations, especially the United States, where muni bonds have attracted investments totalling over USD 500 billion and are among preferred avenues for household savings.
For issuing debt securities to public under the regulations, municipalities need not have negative net worth in any of the three immediately preceding financial years.
Besides, the authority should not have defaulted in repayment of debt securities or loans obtained from banks or financial institutions, during the last one year.
"The corporate municipal entity, its promoter, group company or director, should not have been named in the list of the willful defaulters published by the RBI or should not have defaulted of payment of interest or repayment of principal amount in respect of debt instruments issued by it to the public, if any," Sebi said in a notification.
An issuer making public issue of debt securities can only issue revenue bonds. The issuer should have obtained rating from at least one credit rating agency.
The revenue bonds would have a maximum tenure of thirty years or such period as specified by Sebi from time to time. The issuer shall appoint at least one merchant banker.
The issuer would have to appoint a monitoring agency such as public financial institution or a scheduled commercial bank to monitor the earmarked revenue in the escrow account.
The issuer would have to decide the minimum subscription amount which it seeks to raise by issue of debt securities and disclose the same in the offer document.
The minimum subscription limit would not be less than 75 per cent of the issue size.
In case of non-receipt of minimum subscription, all application money received in the public issue would be refunded to the applicants within 12 days from the date of closure of the issue.
However, in case of a delay by the issuer in making the refund, then the issuer would refund the subscription amount along with an annual interest of 10 per cent for the delayed period.
