By Business India Editorial

The government expects to issue its first green bonds at a 'greenium,' and has identified Rs40,000 crore ($4.92 billion) in projects that can be funded with the proceeds, Reuters reported quoting two government sources. 

The government plans to raise Rs16,000 crore through green bonds for the current fiscal ending 31 March. The proceeds would be used for 'green' projects such as solar power, wind and small hydro projects and other public sector projects that help reduce the economy's carbon footprint.

The government is expecting a green premium, or 'greenium,' on prices to push yields 5-10 basis points (bps) below sovereign bonds, based on the strong response and interest from global and local investors. 

“The expectation of a green premium is in line with 'greenium' that issuers have got globally,” said one of the two sources. Investors showed interest during a meeting with the Ministry of Finance with top 50 foreign portfolio investors (FPIs) in December, the sources said, adding that those with a green mandate asked about domestic registration requirements. 

The Reserve Bank of India (RBI) said there would be no FPI restrictions on these securities. “Green bonds should command a premium because of the mandates to invest in these securities. The outstanding (amount) will be quite small initially and, because of the nature, we may see a bit of aggressive demand,” said Ashish Agrawal, head of FX and EM macro strategy research, Asia, Barclays. The RBI will auction Rs4,000 crore each of five-year and 10-year green bonds.

Demand from domestic banks and mutual funds may be low since these institutions do not have a specific green mandate, said Ritesh Bhusari, deputy general manager for treasury at the private sector lender South Indian Bank. "These securities may also be illiquid in the beginning since only a small amount is being issued," he added. 

The projects identified are more than two-and-a-half times the fundraising plan for the current fiscal, said the sources. 

So the money can be allocated to other projects if the selected ones are unable to utilise proceeds this year, they added.