Context

• Recently, the INR 200 crore municipal bonds issue of the Lucknow Municipal Corporation (LMC) was listed at Bombay Stock Exchange.

Key Details

• This is a historic occasion as it is the first municipal bond issue from North India and the first from Uttar Pradesh after the launch of the AMRUT scheme.
• This bond issue from Lucknow Municipal Corporation is rated ‘AA’ by India Ratings and ‘AA (CE)’ by Brickwork Ratings.
• 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 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 4th year to the 10th year.
• In addition to asset cover, a structured payment mechanism has been put in place to ensure timely payment of both principal and interest obligations.
• The significance of this maiden bond issue from 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.

Back to Basics

What are Municipal Bonds?

• A municipal bond or muni bond is a debt instrument issued by municipal corporations or associated bodies.
• These local governmental bodies utilise the funds raised through these bonds to finance projects for socio-economic development through building bridges, schools, hospitals, providing proper amenities to households, et al.
• Such bonds come with a maturity period of three years, whereby municipal corporations provide returns on these bonds either from property and professional tax collected or from revenues generated from specific projects or both.
• The Securities and Exchange Board of India (SEBI) revised the guidelines related to the issuance of municipal bonds in 2015 in an attempt to enable ULBs or local government bodies to raise finances from such sources.
• Following this measure, different cities have capitalized on the new guidelines to fund initiatives such as Atal Mission for Rejuvenation and Urbanisation Transformation (AMRUT) and Smart Cities Mission.

Source: PIB