The Lucknow Municipal Corporation recently floated its first municipal bond in North India under the AMRUT scheme. In the times of Covid-19, the issue was oversubscribed by 225% (450 crores). The municipal bond was recently launched at Rs 200 crores with 10 years tenure offering 8.5% and will soon be tradable on Bombay Stock Exchange. The significance of this maiden bond issued by an urban local body in Uttar Pradesh is not merely the quantum of resources raised for investments in urban infrastructure but a demonstration of the transformation of Lucknow Municipal Corporation into a model for urban governance and financial management in Uttar Pradesh.
A-credit rating to Lucknow
The funds raised by the Lucknow Municipal Corporation will be used in various infrastructure schemes in the state capital. In the year 2016-2017, Lucknow and Ghaziabad had received A-credit rating and emerged as a better cities to pursue debt for raising funds under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) in comparison to other cities like Varanasi, Kanpur etc.
The proceeds of the issue are proposed to be invested in a water supply project being implemented under AMRUT scheme of the government of India and a housing project. The tenure of the Lucknow Municipal Corporation bond is 10 years and it is structured as a ‘strip’ bond with 7 STRRPs (A to G) and principal repayment to happen in 7 equal annual payments from the fourth year to the tenth year.
Plan of action
The state government has asked other municipal corporations and development authorities for get credit ratings from designated agencies for floating bonds. Kanpur and Varanasi are also expected to soon work on their bond market plans. In order to expand the financial pool of the respective municipal corporations for self-sustaining infrastructure projects, the government decided to raise funds from debt instruments under the flagship Smart Cities of the Centre. The UP government is also keen to encourage other local bodies in the state to emulate the example set by the Lucknow Municipal Corporation.
