Exclusive: LIC, pension funds keen on investing in longer-term govt Green Bonds

The Centre first issued Green Bonds in 2022-23, auctioning a total of Rs 16,000 crore worth of these bonds in the first two months of 2023.

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The finance ministry expects a better 'greenium', or green premium, for the next tranche of Green Bonds as the Life Insurance Corporation of India (LIC) and other key domestic pension funds have expressed interest in investing in the instruments if they are issued with longer maturity periods, a person aware of the matter has said.

"LIC and some domestic pension funds have expressed more interest in picking up green bonds if they are offered papers of longer tenors, such as 30 years... They will be more interested because it is counted as infrastructure investment," the source said.

"Among pension funds, EPFO (Employees' Provident Fund Organisation) and PFRDA (Pension Fund Regulatory and Development Authority) have the corpus to invest," the person added.

The government first issued Green Bonds in 2022-23. These bonds, which had a maturity of five and 10 years, were part of the central government's full-year borrowing plan. However, the government was not impressed with the greenium it received in 2022-23.

Greenium refers to the premium the issuer receives on Green Bond issuances. Investors are willing to accept lower yields on Green Bonds due to the sustainable nature of the projects financed by the proceeds of the bond sales.

While the five-year Green Bond attracted a coupon of 7.1 percent, the 10-year bond was issued at 7.29 percent. This was only around five basis points lower than yields on ordinary government bonds of comparable maturity.

"Around 10 basis points at least is the expectation," the source added, commenting on the greenium.

Higher interest in Green Bonds from the likes of LIC and domestic pension funds could give a boost to the greenium, with foreign investors not being particularly active buyers in the maiden issuance of these bonds.

The government intends to raise at least Rs 16,000 crore to Rs 20,000 crore via Green Bond sales during October 2023-March 2024. The upper limit for these bond issuances in 2023-24 is Rs 25,000 crore, the source said.

The Centre intends to borrow a total of Rs 15.43 lakh crore in gross terms through the issuance of bonds in 2023-24, which includes Green Bonds. The Budget presented on February 1 did not mention the amount the Centre would borrow through Green Bonds.

Moneycontrol had reported in February, quoting a finance ministry official, that the government could not approach the market with Green Bonds without utilising the amount that it had already raised. As such, the Rs 16,000 crore that was raised in 2022-23 is enough until September to finance the projects that have been identified.