The Securities and Exchange Board of India (SEBI) has proposed a few changes in regulations for issuing municipal bonds. This is a result of SEBI’s efforts in enabling other bodies similar to municipalities to raise funds.
As of now, the minimum subscription for corporate bonds on private placements is priced at Rs 10 lakhs. As per the proposed changes, the minimum subscription would be slashed to Rs 10 lakhs from the existing Rs 25 lakhs for municipal bonds on private placements. SEBI has come up with this change in order to align municipal bonds with corporate bonds.
Urban development bodies and other institutions function similar to a municipality, but the constitution has not defined them as ‘municipality’, thus not qualifying them to raise funds through issuing debt securities as per the ILDM regulations (Issue and Listing of Debt Securities by Municipalities).
As per SEBI, the proposed changes are with a view of widening the scope of issuer to consider statutory authorities and trusts, established as per an Act of Parliament or State Government.
Apart from the specified agencies, the bodies established by the State Governments as per the Pooled Finance Development Fund (PFDF) scheme of the Central Government, will be included under the issuer’s scope.
A PFDF is a structure in which a group of municipalities pool resources to raise funds through issuing bonds. The inclusion is subject to PFDFs performing one or more functions mentioned under the 12th Schedule of the Constitution. This includes fighting urban poverty, town planning, and other relevant functions.
SEBI has further proposed a few changes in auditing and requirement of disclosing financial statements of municipalities. SEBI has decided to hear public input on the changes till 10th June 2019.
Back in 2017, SEBI, in order to boost bond market, relaxed regulations that govern municipal bond issuance. Under ILDM regulations, municipalities publicly issuing debt instruments must not have a negative net worth in the last three financial years.
As per SEBI’s records, seven municipalities have so far raised Rs 1,389 crores by issuing debt instruments on private placements.