Sebi on Monday proposed changes to regulations for issuance of municipal bonds as part of efforts to enable fund raising by bodies similar to municipalities. Besides, the minimum subscription amount for municipal bonds on a private placement basis be reduced to Rs 10 lakh from the current Rs 25 lakh in a bid to align it with corporate bonds.
Currently, minimum subscription for corporate bond on private placement is Rs 10 lakh.
While urban development bodies and other agencies carry out functions which are similar to municipality, they are not defined as municipalities under constitution, thereby making them ineligible to raise funds through issue of debt securities under the ILDM (Issue and Listing of Debt Securities by Municipalities) regulations, Sebi said.
Accordingly, it is proposed to widen the scope of issuer to include any statutory body or authority, trust or agency established under an Act of Parliament or an Act of the State Legislature or any SPVs notified by state government or central government, Sebi said in a consultation paper.
Apart from specified agencies, any structure set up by the state government under the pooled finance development fund (PFDF) scheme of the central government is proposed to include under scope of issuer, the market watchdog said.
PFDFs are structures wherein a group of municipalities pool their resources together to jointly raise funds through issuance of bonds.
However, the inclusion is subject to the condition that these entities perform one or more functions listed in twelfth schedule of constitution which includes town planning, urban poverty alleviation and other various functions.
Further, Sebi has also proposed changes in auditing and financial statement disclosure requirement of municipalities. The regulator has invited public comments on the proposals latest by June 10.
In 2017, Sebi eased rules governing the issuance of municipal bonds in order to boost such bond market.
Under the ILDM norms, a municipality making public issue of debt securities should not have negative net worth in any of three immediately preceding financial years.
As per Sebi, till date, seven municipalities have raised Rs 1,389 crore through issuance of debt securities on a private placement basis.