India’s debut in the sovereign green bond market: first deal landed a greenium!

The two-tranche deal will finance expenditures in grid scale solar and wind, decentralised solar such as solar water pumps for agriculture, green hydrogen, metro lines and afforestation. 

The Government of India joined the Sovereign Green Bonds Club on 25 January 2023 when the Ministry of Finance priced an INR 80 billion (USD 1 billion two tranche deal split equally between five and ten year tenors. 

The deal attracted oversubscription of more than four times, enabling primary market spread compression of two basis points on the 10-year, and three basis points on the 5-year tranche. Both tranches priced inside the yield curve, obtaining a greenium, i.e., cheaper financing costs. The five-year bond was allocated to 32 investors and the 10-year to 57 investors, according to the Reserve Bank of India. 

On 09 February each tranche was reopened for INR 40 billion (USD 500 million) increasing India’s total green liabilities to INR 160 billion (USD 2 billion). As the bonds had remained inside the yield curve, the MoF achieved cheaper financing for this round of funding too.  

The use of proceeds have been earmarked for expenditures in grid scale solar and wind, decentralised solar such as solar water pumps for agriculture, green hydrogen, metro lines and afforestation. 

Neha Kumar , Head of South Asia Programmes, Climate Bonds Initiative

"The sovereign green issuance has a significant signalling effect. There are early market signals already pointing to a pick up in the local currency green debt market. A robust repeat sovereign green issuance programme adhering to the best practice for selecting green expenditures will provide a huge impetus."

India's Sustainable Finance Market

India is the sixth largest issuer of green, social, sustainable, sustainability linked, and transition bonds (GSS+) in the Asia Pacific Region, according to unpublished data from Climate Bonds. By the end of 2022, Climate Bonds had recorded GSS+ bonds from 43 sovereigns with combined volumes of USD323.7bn.

 Obtaining a sovereign greenium in local currency suggests strong demand from domestic investors, paving the way for the private sector to leverage the sustainable finance market as a source of capital to support the transition. With the right policy and regulatory incentives India can increase international appetite and also unlock the demand for sustainable investments locally.

Sovereign green bonds will play an important role in supporting India's green transition to meet its recently updated targets of reducing emissions by 2030 and achieving net-zero by 2070. 

The Last Word

Ahead of the G20 Summit in New Delhi later in 2023, India is in a unique position to lead the necessary change towards a sustainable economy. 

We look forward to many more GSS+ deals originating from India in 2023!

‘Til next time,

Climate Bonds