Price Imbalance Seen In NABARD’s Maiden Social Sector Bond Offering

NABARD's maiden social sector bond issue was the first of its kind in the domestic corporate bond market and will be followed by sustainability and green bonds from the issuer

In a first of its kind offering, National Bank for Agriculture and Rural Development today raised Rs 1,041 crore through social sector bonds maturing in 5 years, at a coupon of 7.63 per cent, a company official told Outlook Business.

The issue had a base size of Rs 1,000 crore and a greenshoe option of Rs 2,000. The bonds, rated AAA by CRISIL Ratings and ICRA, will be allotted on Tuesday.

"We received bids to the tune of Rs 8,590 crore against Rs 3,000 crore, and accepted Rs 1,040.50 crore only," the official said.

Despite the benchmark status of bonds issued by NABARD in the domestic corporate bond market, the special offering was retained at less than half of the total issue size due to a mismatch between price offered by the issuer and that offered by the buyers.

“There is no compulsion among investors to invest in these instruments. In developed countries, there are schemes available for the buyers for these offerings, while that portion is still pending in India," said Ajay Manglunia, Managing Director and Head Investment Grade Group, JM Financial.

Among developed countries, US offered tax incentives for bonds financing green buildings as well as renewable energy from 2009. This is in addition to providing tax incentives to more than 80 per cent of the municipal bond market.

On the other hand, it was this year only when the Government of India offered its maiden green bond issue on January 25. The Indian government raised Rs 8,000 crore from bonds maturing in 10 years and 5 years, and another Rs 8,000 crore on February 9 through bonds with similar maturities.

India as of now has reportedly put on hold its plan to raise up to Rs 16,000 crore through sale of green bonds in the second half of 2023-24. The major reason behind this comes as higher returns sought by investors, who claim to lack incentive for subscribing to these thematic instruments.

“For them, these are just normal bonds,” said Manglunia.

Also considering the illiquid nature of such social-purpose bonds, market participants in India are of view that it is a long way to go in terms of developing a market for them.


However, NABARD sees the issue as a step towards evolution.

“Our intention is to deepen the corporate bond market with these issues, and for that we have some green bond issues on the card in the future,” the official said.

NABARD Chairman KV Shaji in an event jointly organized by the company and BusinessLine earlier this month underlined the importance of climate and sustainability. “This is the first by an AAA-rated entity. It will be followed by sustainability and green bonds,” he said.

The state-owned bank had recently announced a Sustainability Bond Framework to finance and refinance new or existing green and social projects.

According to the company official, the proceeds of this issuance will be used to fund water projects in the state of Telangana.

For its borrowing plan, the board of the company in March had approved raising up to Rs 3.78 lakh crore in 2023-24.

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