SEBI eases norms for smart cities to raise funds through 'Muni Bonds'

The decision comes after the board of Securities and Exchange Board of India approved norms in this regard in August.

SEBI has relaxed norms for 'Muni Bonds' issuance to help smart cities as well as entities working in areas of city planning and urban development work, including municipalities, raise funds through debt securities.

The decision comes after the board of Securities and Exchange Board of India (SEBI) approved norms in this regard in August.

Nearly five years ago, the regulator had come out with the Issue and Listing of Debt Securities by Municipalities (ILDM) Regulations and since then seven municipalities have raised nearly Rs 1,400 crore by issuing their debt securities, which are commonly known as 'Muni Bonds'.

Now, SEBI, in a notification dated September 27, said it has opened this route for a larger number of entities, including special purpose vehicles set up under the central government's ambitious 'Smart Cities Mission'. 

Under the new norms, the watchdog has done away with requirements like appointment of a monitoring agency, filing of viability certificate or Detailed Project Appraisal Report, setting up of a separate project implementation cell, maintenance of 100 percent asset cover with specification of resources and mandatory backing of state or central government.

Previously, this fund-raising route was only available to the issuers defined as a municipality under the relevant articles of the Constitution of India or the corporate municipal entities set up as a subsidiary of a municipality for the purpose of raising funds for a specific municipality or a group of those.

After representations from the industry and market participants for amending its ILDM Regulations to expand this market segment, SEBI had initiated a public consultation process in June proposing certain amendments.

Taking into account the feedback, the regulator has amended the regulations to provide greater flexibility in raising funds and for strengthening protection for investors.

The new norms would allow issuance of 'Muni Bonds' also by other entities like urban development authorities and city planning agencies that perform functions similar to a municipality such as planning and execution of urban development projects.

Since such entities are not defined as a municipality under the Constitution, they have not been able to raise funds from the market through Muni Bonds so far.

Besides, SEBI has allowed this route for other structures where a group of municipalities pools their resources together to jointly raise funds through the issuance of bonds. These structures are generally known as Pooled Finance Development Funds.