Govt’s $200-bn renewable push set to fuel green bond bonanza

July 4: A $200 billion spending push by India to boost renewable power output will help drive a surge in issuance of green bonds, according to a unit of Citigroup Inc., the country’s largest arranger of offshore note transactions in 2016.

Withgovernmentsaround the world last year agreeing to a new global climate accord, Prime Minister Narendra Modi’s administration has pledged to foster economic production in the world’s second-most populous nation that is less carbon intensive. It plans to boost renewable energy capacity to 175 gigawatts by 2022 from a current level of just 37 gigawatts, and is aiming to source at least 40 percent of its energy mix from clean sources such as wind and solar by 2030.

Bond buyers are eager to capitalise on climate-related initiatives and Moody’s Investors Service predicted in April that global green note issuance could climb to almost $70 billion this year from $42.4 billion in 2015. An increase in sales from Indian issuers could also help spur the dollar-bond market as a whole, which has been weighed down this year by borrowers’ preference for the cheaper funding available through loans.

“India is spending so much money on renewable energy and improving energy efficiency, it makes a lot of sense to start accessing bonds in the green format,” said Neville Fer nandes, head of debt capital markets origination at Citigroup’s local unit in Mumbai. “You will see this funding theme play out in the financing markets, as sophisticated issuers start tapping this market more aggressively.”

NTPC has appointed bankers for its first ever green bond issue, while Axis Bank Ltd. has sought shareholder approval to raise an additional 350 billion rupees ($5.2 billion) through various instruments, including the environmentally-linked notes. In May, the lender became the third Indian green bond issuer, raising $500 million from overseas investors in an transaction that was oversubscribed 2.2 times.

Energy Efficiency Services said last week that it’s looking to issue green bonds overseas and may raise as much as $100 million in its first offshore bond sale.

“There is a separate pool of liquiditythatcanonlybeused to invest in green bonds,”’ said Fernandes. “This demand becomes sticky because there is a finite list of eligible green projects.”

India’s plan to replace energy-intensive appliances such as light bulbs and irrigation pumps with more efficient designs is expected to save as much as Rs 600 billion a year by 2019. Bloomberg