Cities Near Mumbai to Issue Bonds for First Time, Bankers Confirm

Mumbai's Surrounding Cities Plan to Raise Funds through Bonds

Cities surrounding India's financial capital, Mumbai, are planning to raise funds through bonds for the first time over the next few weeks, signaling a further pick-up in the local municipal debt market. Navi Mumbai and Panvel, both located on the mainland to the east of Mumbai, have kicked off the process by obtaining issuer credit ratings.

Navi Mumbai is targeting a fundraise of around 10 billion rupees ($105.5 million), while Panvel's target amount is yet to be finalized. The merchant bankers involved in the process chose to remain anonymous as the matter is private.

For years, India has attempted to popularize municipal bonds, a common practice in other parts of the world, as a means of funding urban transformation. Municipal corporations, which run cities in India, typically fund public projects such as roads, water supply, and sanitation through bonds.

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According to regulatory data, over 20 cities have raised more than 45 billion rupees over the last nine years through bonds. Mumbai, the richest municipal body in India, has yet to tap the bond market. Navi Mumbai has received a AA+ rating from India Ratings, while Panvel is rated AA- by Care Ratings. The ratings are backed by the cities' strategic location, strong financial profiles, revenue generation, and debt-free balance sheets.

In February, India's Finance Minister Nirmala Sitharaman announced an incentive of 1 billion rupees for municipal corporations issuing bonds worth at least 10 billion rupees. The government also provides a subsidy for maiden bond issues as well as a 2 percentage point interest subvention, making such borrowing cheaper.

The municipal bond market is also gaining interest, with the International Finance Corp in talks with states and urban local bodies to invest in municipal bonds. The organization has signed multiple mandates in states and could act as an anchor investor to mobilize private funding. It is also looking to facilitate pooled bonds for smaller cities.

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