Market participants reported that local banks and insurance companies made up the majority of the buyers of India’s first sovereign green bond sale, with little interest from overseas investors.
On Wednesday, New Delhi raised Rs 8,000 crore via green bonds.
At a coupon rate of 7.10%, five basis points less than the sovereign yield for the same duration, the Reserve Bank of India auctioned Rs 4,000 crore worth of five-year bonds. Additional 10-year notes worth Rs 4,000 crore were offered for 7.29%, which is six basis points less than comparable government securities.
Data from the central bank showed that the value of the bids received was more than four times the amount that was being offered. The five-year bond was sold to 32 investors and the ten-year bond to 57 investors.
“Bulk of the issue was picked up by local banks and insurance companies, with some participation from foreign banks as well,” said a senior fixed-income trader with a private bank. “It seems, demand from foreign investors was not as large as envisaged.”
The benchmark 7.26% 2032 bond yield was at 7.35% at the time of bidding, while the five-year 7.38% 2027 bond rate was at 7.15%.
“The cutoffs are slightly better, and it seems insurance companies chased this issue,” explained Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
Local banks and mutual funds are not required to invest specifically in green bonds and treat them equally with other sovereign bonds. Insurance firms, however, were permitted to categorise these as infrastructure investments.
The central bank of India had lifted restrictions on foreign investment in these securities prior to the bond auction. However, investor interest was muted as they tried to avoid the currency risk connected to rupee-denominated products.
“It seems, foreign investors that invest in ESG bonds generally prefer dollar debt, and were not very keen on rupee-denominated debt,” said a trader with the primary dealership.
The money would go toward “green” investments like solar, wind, and small hydro projects as well as other public sector initiatives that aid in lowering the carbon footprint of the economy.
According to Reuters, the administration met with foreign investors ahead of Wednesday’s auction to assess demand.
On February 9, the government is organising a second similar-sized auction.