The Ministry of Urban Development hopes that few cities will come out with municipal bond issues in the next few months. Pune, Ahmedabad, and Rajkot are the front-runners in this process, multiple sources told BusinessLine .

The Ministry on Thursday held a detailed discussion with representatives from Finance Ministry, potential investors and transactional advisors to discuss market issues, process of credit rating and implementation, modalities of issuing municipal bonds etc. Representatives from Andhra Pradesh, Tamil Nadu and Gujarat were also present at the meeting.

“The financing window for urban local bodies has been sub-optimal and marginally exploited in the past and the total amount raised via municipal bonds across the country has also been very small. So the idea is to encourage a large number of cities to go for credit rating, especially under smart cities mission, to tap into sources of funding,” a senior official in the Ministry of Urban Development said.

According to rough estimates, the country has so far seen over 25 municipal bond issues which have raised a total of over ₹1,600-1,700 crore.

While 16 cities have already got credit rating, the government expects 25-30 to get good credit rating with BBB as the general cut-off. Ahmedabad Municipal Corporation and New Delhi Municipal Council (NDMC) have got A-- rating (positive credit worthy). As many as 85 cities are expected to get credit rating by March next year.

After getting a credit rating, the Ministry wants cities to implement a roadmap for improving finances, internal sources of revenue, book-keeping, etc.

“We are asking cities to identify projects which have potential revenue generating streams and are urging them to issue municipal bonds. We have provided them with services of credit rating agencies empanelled by SEBI,” another source added.

The Ministry of Urban Development has made available a panel of transactional advisors, model RFPs, and has taken meetings with cities, transactional advisors, potential investors, etc.

“We expect few cities to issue municipal bonds in the next few months,” the official added.

Meanwhile, Finance Minister Arun Jaitley in this year’s Budget had announced that LIC will set up a dedicated fund to provide credit enhancement to infrastructure projects. The fund will help in raising the credit rating of bonds floated by infrastructure companies and facilitate investment from long term investors.

“This may also be used to help projects in cities on a case to case basis,” the official added.

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