Officials are in talks with foreign portfolio investors with dedicated green funds, as well as local banks and insurance firms for an auction mid-December, the people said, asking not to be identified discussing private deliberations. The government is seeking a discount of at least 2-5 basis points compared to the yield on the benchmark 10-year note, they added.
Demand for the bond could feed into India’s budget estimates, as authorities hunker down to project revenue and expenditure for the year starting April 1, 2023. India aims to issue 160 billion rupees ($2 billion) of green bonds by March 31, a fraction of its record $175 billion federal borrowing program for the year. Investor appetite for the new notes could significantly lower India’s cost of borrowing.
Strong demand for sustainable debt and the promise of helping the environment often allow issuers to lock in lower interest rates compared with conventional bonds. Denmark recorded a premium of five basis points as it sold $760 million of its inaugural 10-year green debt via auction this year.
But the green premium — known within the industry as the greenium — has been a topic of debate. A Federal Reserve paper this year found green bonds have a yield spread that is eight basis points lower on average relative to conventional bonds. But this so-called greenium in corporate bonds is biased toward investment-grade European firms rather than those with the best projects, they found.
Foreign investors can buy India’s green bonds through the Fully Accessible Route, one of the people said. Local purchasers can include the notes in the Statutory Liquidity Ratio requirements, the person said.