Sovereign green bonds may get 6-8 bps ‘greenium’ in H2FY24 on firm demand: Experts
India’s sovereign green bonds, scheduled to be issued in the second half of the current financial year, are expected to enjoy a 6-8 basis point premium, often referred to as a ‘greenium,’ owing to strong demand from specific investors, according to experts in the money market.
This anticipated greenium represents a slightly higher premium compared to the one received for India’s inaugural green bond issue earlier in the year. Umesh Kumar Tulsyan, Managing Director of Sovereign Global Markets, mentioned that the expected premium will likely fall within the range of 6-8 basis points. As awareness about green investments grows and liquidity in the market expands, these sovereign green bonds are likely to command an even higher premium, further underlining the appeal of environmentally responsible investments in the financial landscape.
The premium, or greenium, associated with the yields on these bonds is essentially the difference between the yields at regular sovereign bond auctions and those at green bond auctions. It is often referred to as a pricing benefit, and it’s a phenomenon that issuers worldwide experience when they sell environmentally friendly bonds or securities.
Murthy Nagarajan, Head of Fixed Income at Tata Mutual Fund, has indicated that the greenium expected for India’s sovereign green bonds will likely be in line with what was observed during the maiden issuance of such bonds. This consistency in the premium is attributed to the demand from investors, particularly foreign banks, who have shown a strong interest in green investments, underscoring the ongoing global shift towards sustainable and environmentally responsible financial instruments.
The central government of India has revealed its plans to issue green bonds worth Rs 20,000 crore in the second half of the borrowing calendar for the financial year.
In addition to the green bonds, the government is set to raise funds by issuing government securities in the second half of the fiscal year 2023-24, with a total borrowing target of Rs 6.55 lakh crore. The borrowing calendar, announced on September 26, includes the issuance of Green Bonds with varying maturities. Specifically, there will be Rs 5,000 crore each of 5-year Green Bonds scheduled for November 10, as well as 10-year Green Bonds set to be issued on December 8.
Furthermore, the government plans to issue two bonds with a 30-year maturity, each worth Rs 5,000 crore. The issuance dates for these 30-year Green Bonds are January 19, 2024, and February 2, 2024.
This move builds upon the government’s previous issuance of Green Bonds in the last quarter of the fiscal year 2022-23, which included bonds maturing in 5 and 10 years. The issuance of green bonds is part of India’s commitment to promoting environmentally responsible investments and sustainable financing.
The announcement of the green bonds is seen by experts as a means to finance the various green projects outlined in the Union Budget 2023 by the Indian government. These projects encompass a wide range of environmentally sustainable initiatives, including green fuel, green farming, green mobility, green buildings, and green equipment, among others.
Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincorp, highlighted India’s strategic significance and its commitment to promoting green growth, as emphasized in the budget. He noted that the reduced greenium observed during the previous issuance of green bonds has not deterred enthusiasm, especially considering that the government has increased the issuance size from Rs 16,000 crore to Rs 20,000 crore for the current year.
Furthermore, a noteworthy portion of this issuance, 50 percent, consists of long-duration 30-year sovereign green bonds. This indicates the government’s strong dedication to advancing sustainable and environmentally responsible initiatives through robust financing mechanisms.
On January 25, the Indian government successfully raised Rs 8,000 crore through its inaugural sovereign green bond issue. These green bonds had maturities of 10 years and 5 years, offering yields that were set at a premium over six basis points (bps) below the prevailing benchmark yields for regular sovereign bonds.
For the 10-year sovereign green bonds (NEW GOI SGrB 2033), the government set the cut-off yield at 7.29 percent, while for the 5-year sovereign green bonds (NEW GOI SGrB 2028), the cut-off yield was established at 7.10 percent.
In terms of demand and acceptance, the 10-year SGrB attracted competitive bids worth Rs 19,367 crore, of which the Reserve Bank of India (RBI) accepted bids amounting to Rs 3,948.646 crore. Additionally, non-competitive bids worth Rs 51.354 crore were received for this 10-year bond.
For the 5-year SGrB, competitive bids totaling Rs 3,993.124 crore were accepted, along with non-competitive bids amounting to Rs 6.876 crore. These results underscored strong investor interest in environmentally responsible investments and demonstrated the success of the government’s inaugural sovereign green bond issuance.
