The Centre is likely to kick off its first-ever issuance of green bonds strongly, with debt market participants expecting firm demand, said a report by Business Standard. As per the report, the encouraging response to the maiden sale may be reflected in a pricing premium or “greenium” relative to prevailing levels on corresponding regular government bonds.
The first tranche of sovereign green bonds is set to go to auction on Wednesday. A total of ₹8,000 crore worth of green bonds — ₹4,000 crore of 5-year green bonds and ₹4,000 crore of 10-year green bonds — would be on the block, said BS.
The government had announced the sale of green bonds as part of its market borrowing for the first time in the Union Budget for financial year 2023. The proceeds would be deployed in public sector projects in order to reduce the carbon footprint of the economy, said the report.
The central government would also auction ₹8,000 crore worth of green bonds on February 9, taking the total issuance to ₹16,000 crore for FY23, the report added.
The difference between regular sovereign bond auctions and green bond auctions is the premium — or the pricing benefit — that issuers globally enjoy for selling environment-friendly securities, the market daily pointed out.
“The (first) issue is going to sail through but we don’t think that there is going to be a very deep premium. What we expect is that it will sell at a richer price than a normal sovereign bond of the same maturity,” Vijay Sharma, senior executive vice-president, PNB Gilts, was quoted as saying in the report.
Globally, green bonds are issued at a premium as the instrument, by design, is meant to facilitate access to cheaper capital for environment-friendly projects, noted the report. State-owned banks in particular are likely to display strong demand for the first sale of green bonds, it added.
Going ahead, however, the demand among foreign portfolio investors would play a key role in determining the sustainability of issuing green bonds at a hefty premium, the report said citing traders. In a bid to encourage overseas participation, the Reserve Bank of India (RBI) said that green bonds would be designated as securities under the 'Fully Accessible Route' for foreign investors, it added.