A MATTER OF BIDDING

Under the Smart Cities Mission, municipal bodies would issue bonds to raise money; Pune would be issuing the first such bonds soon

The urban development ministry has empanelled 9 transaction advisory firms to help in their issuance; besides SBI Caps, other agencies are from the private sector

The firms are supposed to bid for an advisory role and also for merchant banking operations

But the municipal bodies, in a seeming bid to avoid controversy, has awarded mandates to only SBI Caps issuer, on the other hand, could suffer as it would have to pay higher coupon. Multiple bidding helps in effective price discovery.

To address this, the urban development ministry, on May 18, brought out an advisory stating there should be a transparent bidding process for coupon discovery.

The Smart Cities Mission advisory said after identification of the project(s) to be funded through municipal bonds, the transaction advisor will prepare a term sheet clearly defining the financing structure of the project, tenor and minimum commitment amount.

“The bids for the merchant banker can be invited from all the merchant bankers accredited with Sebi or selected merchant bankers based on a sorting process as per the requirement to be decided by the cities,” the advisory says.

A senior official at the ministry of urban development told Business Standard it would be ideal if the cities were to call for multiple bidding. “But it is still left to the local bodies to decide how they want to go about it,” he said.

However, the municipal bodies may have their own compulsion. According to several officials Business Standard interacted with, the local bodies are afraid that the mandates, if given to private sector merchant bankers, were susceptible to allegations of corruption for no reason. And therefore, the local bodies wanted to play it safe with their first mandates. The ministry official said the government was aware of this fear and was telling corporation officials that they needn’t worry on this front as it was a panel shortlisted by the government.