Sebi amends norms to raise funds via ‘Muni Bonds’ for Smart City mission

Security and Exchange Board of India (Sebi),in it’s move to help smart cities and other registered entities working in city planning and development i.e.urban development authorities and city planning agencies that perform functions similar to a municipality would be allowed to raise money by issuing ‘debt securities’ or otherwise known as ‘Muni Bonds’. Sebi has allowed this Issuing and Listing of Debt Securities by (I.L.D.M) to expand various other entities, special purpose vehicles that have been set up under the Smart City Missions.

Under the new norm, Sebi would do away with requirements like the appointment of monitoring agency, filing of viability certificate or Details Project Appraisal Report, setting up of a separate project implementation cell, maintenance of 100%asset covers with specifications of resources and mandatory backing of state or central government. This would in effect help in improving the pace of implementation for the projects under Smart City mission which otherwise get postponed due to the lack of funds. 

According to the current regulations, this fund-raising route is only available to the issuers defined as a municipality under the Constitution of India or the corporate municipal entities set up as a subsidiary of a municipality for the purpose of raising funds for a specific municipality or a group of those. Now, after the amendment, all bodies that are involved in planning an executing goals that come under Smart City Mission would be allowed to raise funds. Since such entities are not defined as a municipality under the Constitution, they have not been able to raise funds from the market through Muni Bonds so far. The existing regulations allow issuance of only revenue bonds with a minimum tenure of three years and maximum of five years if it is a public issue. 

Apart from that, Sebi has also decided to allow this route for other structures where a group of municipalities pool their resources together to jointly raise funds through the issuance of bonds. These structures are known as Pooled Finance Development Funds. Sebi is taking effective steps in increasing flexibility for raising funds. Apart from that Sebi has also extended this to Special Purpose Vehicles (SPV) which has been set up under Smart City Mission for implementing projects that ensure adequate water supply, sanitation, sustainable and inclusive development of cities etc. that also come under the functions of the municipality.

Sebi has now decided that any entity incorporated under the Companies Act, or any statutory body or board, authority, trust or agency established or notified by an Act of Parliament or an Act of the State Legislature, or any SPC notified by the state or central government, or any structure set by a state government under the Pooled Finance Development Fund would be eligible to issue Muni Bonds. This would be subject to the condition that the entity concerned carries out one or more functions of a municipality. Sebi would also amend rules relating to accounting, auditing and disclosure of financial statements to take into account the expanded list of eligible entities and the requirements of such entities to get their accounts audited by the Comptroller and Auditor General of India (CAG) and approved by various authorities.

Besides, the regulator would relax norms pertaining to creation of escrow accounts and do away with requirements for appointing a monitoring agency and establishing a separate project implementation cell.


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