Govt may issue sovereign green bonds in second half of FY25 (2024)

Although the interim budget, presented by finance minister Nirmala Sitharaman today, did not specifically mention green bonds, their issuance is expected in the third or fourth quarters of FY2025, Seth said on the sidelines of the post-budget press conference.

Mint had on 12 January reported that the government is likely to issue sovereign green bonds worth at least ₹20,000 crore as part of the borrowing programme for fiscal 2025 (FY25), with a large chunk of these bonds likely to be sold in the second half of the next fiscal year.

Green bonds address the funding requirements for projects in solar, wind and hydropower sectors. With several financially viable projects in the public sector in the pipeline, policymakers feel that funds raised through this route will be easily utilized.

Interestingly, the budget for FY24 also did not mention sovereign green bonds.

However, the government later included a phased ₹20,000 crore green bond plan for the second half of the borrowing calendar. Of this, bonds of ₹ 5,000 crore with a tenure of five years were sold in November 2023, and ₹10,000 crore worth of bonds with a tenure of 30 years in two tranches of ₹5,000 crore each are expected across January and February 2024; bonds worth another ₹5,000 crore are expected by March.

Currently, the sustainability-linked bond market is navigating a slowdown amid rising interest rates globally. The weakness marks a shift from past years when governments and companies raised funds for green initiatives at attractive rates.

For green bonds to support borrowing plans, they need to offer a cost advantage over conventional bonds, especially considering their eco-friendly label, a senior finance ministry official had earlier told Mint.

The official said that if conventional bonds yield 7-7.2%, green bonds should be at a discount and shouldn’t have more than 6.8% yield for it to be feasible. The yield on the Indian 10-year government bond settled at 7.04% on 1 February.

The yield had jumped in the past months as central banks across the world tightened monetary policy, impacting demand for emerging market bonds.

The funds raised by selling green bonds can’t be utilized for projects related to fossil fuel extraction, production or distribution, or nuclear power. They can be used for government investments, subsidies, grants-in-aid, tax foregone or operational expenses to support climate mitigation and sustainable green initiatives to reduce carbon intensity.

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Published: 01 Feb 2024, 07:41 PM IST