MUMBAI: The Securities and Exchange Board of India (Sebi) plans to unveil detailed guidelines that will layout ground rules for issue of municipal bonds, Ananta Barua, executive director at the regulator said here.
Barua was responding to a query on when could the first municipality issue bonds following the resolution at the Sebi's board meeting in New Delhi on Sunday.
As per the board meeting, to raise capital a municipality must get an investment grade rating; should not have had negative net-worth over the past three years and should not have defaulted over the past one year at least.
The Sebi board also recommended that the authority must invest at last a fifth of the project for which it plans to raise money in municipal bonds. It should raise funds for at least three years and bonds should be sold to the public and not to select institutions in private placement.
In the past, only Ahmedabad Municipal Corp raised about Rs 100 crore in 1998. Last year, Kolhapur municipality had planned to seek a credit rating with an intention to raise funds from municipal bonds.
Such issuances would help enforce greater financial discipline of municipalities and increase their accountability. It would also reduce financial stress on state governments which have to bridge any shortfall in revenues of local municipalities.
In the US, municipalities have so far raised $3.7 trillion from investors. Such bonds are widely traded and have been issued since the early 1930s when President Frank D Roosevelt started massive public works program to help the economy tide over the great depression.
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