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India plans to issue its first sovereign bond green bond in the coming months at significantly lower borrowing costs. The government has developed a framework to sell the debt in line with widely-used principles from the International Capital Market Association.
Sources familiar with the situation claim that officials want a substantial “greenium”, or the premium paid by investors for bonds that support environmental projects.
The government, they claimed, declined to identify themselves because the discussions are confidential. It has set up a structure to sell debt according to generally accepted guidelines of the International Capital Market Association. They also have contact with the World Bank regarding best practices.
Asia’s third-largest economy would benefit from a lower cost borrowing to finance infrastructure and achieve its renewable energy goals. The first green bond sale will take place before the end of March’s fiscal year. Negotiations with ministries continue to identify opportunities including vehicles, renewable energy and a Ganges river rehabilitation effort.
Sandeep Bhattacharya (climate change advisor at GIZ, former India project manager for the Climate Bonds Initiative in Mumbai) said that “you need to do some outreach” and engage investors to create a greenium. The market conditions at the time will also affect the size of the greenium.
Foreign investors who are interested in India’s first green bonds, which will be issued in rupees, could also face currency risk. The benchmark 10-year sovereign note yield has increased to 7.12%, from 6.46% at last year’s end. This makes it more difficult for the government raise additional funds.