Keshav Varma, who was behind the city bonds in the Ahmedabad Municipal Corporation in 1998, making it the first urban local body in South Asia to raise funds from the market, is among those credited for the Lucknow Municipal Corporation (LMC) bonds, talks for which firmed up in 2018. According to Varma, the next city on the list to go public is Ghaziabad which is part of the NCR, followed by Varanasi, Agra, Kanpur and Prayagraj.
“We have Rs 450 crore bid against the Rs 200 crore bond by 21 investors, with a huge diversity of investors from the private and public sector. Only one investment is from UP — the UP Cooperative Bank – the rest is from Delhi and Mumbai. In fact, Rs 125 crore of the Rs 200 crore in the bond is from Mumbai investors which is exceptional”, said Varma in an interview to this paper on Wednesday.
Varma, who has done a 16-year stint with the World Bank is also the Chairperson of the Sabarmati Riverfront Development Corporation Ltd (SRFDCL), a city-run special purpose vehicle for executing the riverfront project. The LMC raised the bonds on private placement basis using the BSE bond platform and received 21 bids subscribed by 4.5 times.
The model is similar to AMC, which has gone for private placement bonds in the last four instances with only the first being completely from the open market. Last year AMC saw an over subscription of its Rs 200 crore bond, the fifth since 1998. AMC bonds are listed on NSE. Like AMC, the Centre provided an interest subvention of 2 per cent to Lucknow, thus providing it Rs 26 crore as grants. “For Lucknow now the bond will cost us 6.5 per cent (interest) which makes it attractive,” Varma said.
He added that Ghaziabad is “primed up” for a bond issue that could come up “in the next six months” and thus “catalyse a process in a global city region (which is the NCR)”.
About bonds being the future, Varma says the UP bond helped realise “undervalued blocked capital in the market which can be released through innovative financial instruments”.
He said that there is a need to develop this “sub national city bond market to improve services and meet the aspirations of the people in urban areas but also to develop a more modern market oriented system and change the culture of management. This is about transformational urbanism where urbanism becomes a pillar of growth”.
He believes there is a greater trust and confidence in a sub national instrument. “Investors are now comfortable with a city bond, there is no sovereign guarantee but the structure is very solid”. Lucknow, a much smaller city in terms of population and budget when compared to Ahmedabad, raises most of its finances from property tax and water tax, apart from the housing scheme. Varma discloses plans to increase the coverage of LMC’s tax by using technology. “We are bringing some new technologies to ensure there is better coverage of property tax using GPS to ensure the number of properties covered- also by use of drones, (placing) good water connection meters to know how much water is being used”.
After Ahmedabad there are eight cities that have raised funds from the market by issuing bonds including Pune, Indore, Bhopal and Vishakhapatnam.
Asked about how the idea of the LMC bond came up, Varma says, “Given my association with Ahmedabad both in terms of the bond and the riverfront there has been an expectation that I would provide support to access the market and look at possibilities of riverfront development. There is some very good work being done in Mathura, Varanasi and Ayodhya (on the riverfront)… there is a general movement towards progress”. He cites UP’s rise to the second position in the ease of doing business rankings and credits Chief Minister Yogi Adityanath for “leading from the front”.
About the difference in the Ahmedabad and Lucknow experience, the latter also being his home city, Varma says, that “in Ahmedabad we were apprehensive… we did not know the risks. We had very little flows, very little Government of India or state government schemes, and the bond became critical. For UP, the financial systems needed to be aligned but now we have more mature credit rating agencies, transaction advisors, you can try and minimise the risk”.