Civic bodies with surplus allowed to issue bonds

Municipalities having a surplus in their books in any of the three immediately preceding financial years will be eligible to issue bonds, with the Sebi deciding to amend norms in this regard. The eligibility would also be decided by financial criteria specified by Sebi from time to time.

To boost the market for municipal bonds, also known as muni bonds, the Sebi board on Saturday approved changes to the relevant regulations in order to provide a criteria that is alternative to ‘net worth’ of the municipalities. The decision also comes against the backdrop of Prime Minister Narendra Modi last month pitching for boosting the municipal bonds market.

After its board meeting here, Sebi said municipalities making public issue of debt securities should have “surplus as per its Income and Expenditure Statement, in any of the three immediately preceding financial years or any other financial criteria as specified by Sebi from time to time”.

Under the Sebi (Issue and listing of Debt Securities by Municipalities) Regulations, 2015 (ILDM), a municipality or a Corporate Municipal Entity (CME) making public issue of debt securities should not have negative net worth in any of three immediately preceding financial years.

Stating that he is “disappointed that even now we do not have a municipal bond market,” Modi had urged Sebi and the finance ministry to ensure that at least 10 cities issue municipal bonds within one year.

Meanwhile, suggesting a facilitative role for Sebi, its international advisory board (IAB) on Saturday suggested to the regulator to study migration to fee-based model for robo-based investment advisory and also be “tough but open to innovations” in new areas like crowd-funding. The panel also asked the capital market regulator to ensure performance evaluation for boards of listed companies has to go “beyond a box-ticking exercise” and enable disclosure of the evaluation result with shareholders.

At its two-day meeting that ended on Saturday, the IAB discussed in detail the issues and developments relating to corporate governance and noted that it must help the companies achieve their objectives and implement their corporate strategy while keeping the interest of various stakeholders in mind. “A matrix of expertise may be introduced to make the board diverse, balanced and in tune with the requirements for effective functioning of the company,” the panel noted.