According to the report, an encouraging response to the first sale is likely reflected in a price premium or “geranium” to the prevailing levels of the related conventional Treasuries.
Business Standard said in a report that the Center is likely to begin issuing green bonds for the first time as debt market participants expect strong demand.
Primary Treasury Green Bonds will be auctioned off on Wednesday. The bloc will issue green bonds totaling Rs 8,000 trillion, including 5-year green bonds worth 4,000 trillion and 10-year green bonds worth 4,000 trillion, BS said.
The government announced for the first time that it will sell green bonds as part of market borrowing from the union budget for the fiscal year 2023. Proceeds go to public sector projects to reduce the economy’s carbon footprint. , the message says.
The central government will also hold an auction of 8,000 trillion green bonds on February 9, bringing the total issuance to 16,000 trillion in fiscal year 23, the report said.
Markets point out daily that the difference between a regular Treasury auction and a green bond auction is the premium or price advantage that issuers around the world receive from selling green securities.
“The (first) issue is going to sail through but we don’t think that there is going to be a very deep premium. What we expect is that it will sell at a richer price than a normal sovereign bond of the same maturity,” Vijay Sharma, senior executive vice-president, of PNB Gilts, was quoted as saying in the report.
According to the report, green bonds worldwide are issued at a premium because they are designed to provide easy access to cheaper capital for environmentally sound projects. In particular, state-owned banks are likely to see strong demand for their first sale of green bonds, he added.
But going forward, demand from foreign portfolio investors will play a major role in determining the sustainability of high-premium green bond issuance, the report cited traders. To encourage foreign participation, the Reserve Bank of India (RBI) added that green bonds would be classified as securities under a “fully accessible pathway” for foreign investors.
