RBI details maiden sovereign green bond sales worth Rs 16,000 cr

Government to sell 5-year, 10-year green bonds on Jan 25 and Feb 9

The Reserve Bank of India (RBI) on Friday notified an indicative calendar for the first ever sales of sovereign green bonds, with total issuances of such securities pegged at Rs 16,000 crore in the current financial year.

The first auction of sovereign green bonds worth Rs 8,000 crore, which will take place on January 25, includes Rs 4,000 crore worth of 5-year sovereign green bonds and Rs 4,000 crore worth of 10-year sovereign green bonds.

The next auction worth Rs 8,000 crore, which is scheduled February 9, also consists of Rs 4,000 crore worth of 5-year sovereign green bonds and Rs 4,000 crore worth of 10-year sovereign green debt, the RBI said.

The RBI, the government’s debt manager, usually carries out auctions of regular government bonds on Fridays.

In the Union Budget for the current financial year, the government had announced the issuance of sovereign green bonds as part of the overall market borrowing. The market borrowing for the financial year is pegged at Rs 14.21 trillion, a record high.

The sovereign green bonds will be used for mobilising resources for green infrastructure and the proceeds deployed in public sector projects, the government had said.

The sovereign green bonds will be auctioned using the uniform price method, the RBI said, adding that five per cent of the notified amount of the sale would be reserved for retail investors under the non-competitive bidding facility.

Sovereign green bonds would also be eligible for the repurchase, or repo, transactions as well as being eligible for consideration as Statutory Liquidity Ratio (SLR) securities, the RBI said.

The sovereign green bonds will be eligible for trading in the secondary market and will be designated as specified securities under the ‘Fully Accessible Route’ for investment by non-residents. Securities which are listed under the RBI’s ‘Fully Accessible Route’ do not have any limit on overseas investment.

Like regular government securities, sovereign green bonds would be eligible for ‘when issued’ trading in accordance with RBI guidelines, the central bank said. ‘When issued’ trading refers to a segment of transactions which enables market players to place bids at certain price levels before the actual auction of a bond is carried out.

According to analysts, the success of the government’s green bond plan would to a large extent depend on the creation of a conducive ecosystem for such securities, as is the case in some countries. In particular, an established network of foreign investment would be crucial for the successful issuance of green bonds.

Globally, green bonds are issued at a premium to other kinds of debt, as the instruments, by design, are meant to facilitate access to cheaper capital for environmentally-friendly projects. What this means is that the rate of interest offered by green bonds to investors is lower than other debt instruments.

Furthermore, such bonds issued by governments would hypothetically carry an even greater premium—or lower interest rate—as sovereign borrowing is considered to be bereft of risk.