The National Bank for Agriculture and Rural Development (NABARD) has successfully raised Rs 1,041 crore through its social impact bond. This bond has a maturity period of five years and offers a coupon rate of 7.63 percent.
NABARD had initially set a base issue size of Rs 1,000 crore for the bond, and they also included a green shoe option, which allowed for an additional Rs 2,000 crore in subscriptions.
This achievement marks a significant milestone for NABARD and demonstrates the growing interest and participation in social impact bonds, which are designed to fund projects that generate positive social and environmental outcomes in addition to financial returns.
NABARD has achieved a significant milestone by issuing its first-ever externally certified AAA-rated social bonds in India, as confirmed by NABARD in a statement. These bonds have received AAA ratings from credit rating agencies CRISIL and ICRA, underscoring their strong creditworthiness.
Market participants have noted that investors were seeking a higher yield on these specialized bonds. However, NABARD was unwilling to offer a higher interest rate than what it offers on its existing bonds. This indicates NABARD's commitment to maintaining competitive terms for its investors while advancing its initiatives through these social impact bonds.
“In the morning, the yields were on the higher side, NABARD’s was a social sector special category bond. The number of investors for such causes, especially ESG and other banks, is not much. So they (NABARD) found it tough to raise the required amount and they didn't want to pay a higher coupon,” said Ajay Manglunia, managing director and head investment grade group at JM Financial. “So they decided to issue that much only. People were asking for slightly higher than the normal bond. So if you look at the pricing, which they attained, it was more or less in line with what the normal bonds of Nabard are today.”
NABARD's issuance of these social impact bonds has received a remarkable response from institutional investors, with a total bid amounting to an impressive Rs 8,590.50 crore. Out of this substantial interest, NABARD opted to accept Rs 1,040.50 crore at a competitive coupon rate of 7.63 percent, as stated by the financial institution.
The execution of this bond issuance was facilitated by the arrangers, namely A K Capital Services, ICICI Securities Primary Dealership, and Trust Investment Advisors Private Limited. Their role was instrumental in bringing together this successful initiative, underscoring the collaborative efforts involved in promoting social impact investments.
“The five-year bonds were trading around 7.68- 7.70 percent in the secondary market, so the bidding was around that line. But NABARD was expecting some ‘greenium’ on the bonds,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.
In the realm of finance, the term "Greenium" denotes the favorable pricing aspects associated with green bonds. These bonds are regarded positively by investors who are often willing to pay a premium or accept lower returns. This is primarily because they view green bonds as a means to contribute to sustainable financing, aligning their investments with environmental and social responsibility. This willingness to pay more or accept reduced returns demonstrates the growing importance of sustainable finance in the investment landscape.
“They were getting the entire Rs 3,000 crore at 7.68 percent, only 5 basis points higher, but they were thinking that they should get the entire amount at 7.63 percent,” said a dealer at a private bank. “That was their expectation, that’s why they went for the base issue size,” he added.
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