GS Paper II & III
News Excerpt:
The Reserve Bank of India (RBI) cancelled the auction of 10-year green bonds as traders refused to pay greenium.
|
About Greenium
- Greenium signifies the premium investors are willing to pay for green bonds because of their sustainability impact.
- A greenium is a term used for the lower yield investors are willing to accept for these securities, which are intended to finance environmentally sustainable projects.
|
More detail about news:
- This was the first instance of the government cancelling a green bonds auction since they first started selling such securities in January 2023.
- The Reserve Bank of India did not accept any bids for this bond, against plans of raising 60 billion rupees ($719.44 million).
- The bids were not at an appropriate level for the new 10-year green bond and may be since there was no greenium, the RBI must have decided to not accept bids as the government's cash balance is very high.
- Traders indicated the bids were in the range of 6.99%-7.06%, with most bids above the 7.02% mark. The benchmark bond yield IN10YT=RR was around 6.99% at the time of bidding.
- The central bank does not disclose the bids received.
Past fund raised via Green bond
- In fiscal 2023, the government raised 160 billion rupees through the sale of such bonds, which were sold at around 5-6 bps below the comparative government bond yields.
- After skipping auctions from April to September 2023, the government raised 200 billion rupees through green bond sales over the rest of fiscal 2024 at 1-2 bps below the prevailing yields. It also introduced a 30-year security at the time.
- Most of these bonds have been subscribed by state-run banks and large state-run insurance companies.
- The 30-year papers had also seen participation from other insurers.
|
Green Bonds
What are Green Bonds?
- Green bonds are bonds issued by any sovereign entity, inter-governmental groups or alliances and corporations with the aim that the proceeds of the bonds are utilized for projects classified as environmentally sustainable. The framework for the sovereign green bond was issued by the government on November 9, 2022.
Why are these bonds important?
- Over the last few years, Green Bonds have emerged as an important financial instrument to deal with the threats of climate change and related challenges. According to the International Finance Corporation (IFC), a World Bank Group’s institution, climate change threatens communities and economies, and it poses risks for agriculture, food, and water supplies.
- A lot of financing is needed to address these challenges. It’s critical to connect environmental projects with capital markets and investors and channel capital towards sustainable development – and Green Bonds are a way to make that connection.
How beneficial is it for investors?
- Green Bonds offer investors a platform to engage in good practices, influencing the business strategy of bond issuers. They provide a means to hedge against climate change risks while achieving at least similar, if not better, returns on their investment. In this way, the growth in Green Bonds and green finance also indirectly works to disincentivise high carbon-emitting projects, as per the IFC.
Where will the proceeds go?
- The government will use the proceeds raised from SGrBs to finance or refinance expenditure (in parts or whole) for various green projects, including in renewable energy, clean transportation, energy efficiency, climate change adaptation, sustainable water and waste management, pollution and prevention control and green buildings. In renewable energy, investments will be made in solar, wind, biomass and hydropower energy projects.
|
