A Quick Commentary On India’s Sovereign Green Bonds Worth $3.3 Billion

Share:
Image

There's an interesting backstory behind India's sovereign bond issuance. The idea was approved in the Union Budget around two years ago, with a goal of raising up to $10 billion through sovereign bonds. Internal opposition grew, and the proposal was eventually scrapped after the PMO interfered. In this context, the Indian government's recent plan to issue $3.3 billion in sovereign green bonds is significant. Sovereign green bonds are similar to any other government-issued sovereign bond. The only difference is the use of the cash raised, which can only be used for activities and initiatives that reduce carbon emissions, such as renewable energy, green hydrogen, and rechargeable batteries. These green bonds have a reduced cost of capital because they provide carbon neutrality benefits to their buyers. The problem is likely to debut in the market in the first or second quarter of FY23, with the finer specifics to be revealed later. This will be the first tranche, and if there is sufficient demand for green bonds, the centre may consider selling more than $3.3 billion in green bonds. This problem represents a significant shift in the Indian economy's commitment to a low-carbon future. Costs and other details are still being worked out. To some extent, India's venture into green bonds mitigates the risk of sovereign bonds. Because sovereign bonds are usually denominated in hard currencies like the US Dollar or the Euro, they tend to increase the issuer's liabilities if the native currency falls. This step will also help India achieve its objective of becoming carbon neutral and net-zero emissions by the year 2070. While the 10-year benchmark sovereign bond yield is currently about 6.85 percent, the government expects to be able to borrow at a lower rate through green bonds. That will be the key draw, because it may not make sense for India to take on the risk of national debt unless the difference is large enough. This is in line with the global surge in renewable energy, sustainable business models, and sustainable strategy. Indian conglomerates such as Reliance and Adani have committed billions of dollars to green projects such as renewable energy, green hydrogen, electric vehicle batteries, and electric vehicle ecosystems. India, the world's third-largest emitter of greenhouse emissions, wants to double its renewable energy producing capacity by 2030. The timing is right for the launch, with global investor and lender enthusiasm for green firms at an all-time high.

Share: