The Reserve Bank of India (RBI) devolved the auction of the new Sovereign Green Bond (SGrB) on primary dealers (PDs) as investors bid for these bonds at a lower price, reflecting lack of interest in these bonds due to their relatively illiquid nature.
The lack of investor interest is also underscored by the fact that the central bank had cancelled a SGrB auction in May. Later, at the August 2 auction of these bonds, government accepted bids aggregating only ₹1,697 crore against the notified amount of ₹6,000 crore.
At Friday’s auction of SGrBs, against the notified amount of ₹5,000 crore, the RBI received 73 competitive bids aggregating ₹9,630 crore and four non-competitive bids aggregating ₹2 crore.
While the central bank accepted all the non-competitive bids, it accepted only nine competitive bids aggregating ₹1,500 crore, devolving ₹3,497 crore on PDs. The cut-off yield at the auction was 6.79 per cent.
PDs are financial intermediaries that function as a link between the debt manager and investor, and provide liquidity in the secondary market. As the underwriters at Government Security (G-Sec) auctions, they absorb the devolved amount.
Ajay Manglunia, MD & Head-Fixed Income, InCred Capital Financial Services, said: “Systemic liquidity has become tight…Yields of G-Secs have gone up. Today, the auction of the Sovereign Green Bond (SGrB) devolved on PDs as the cut-off was 6.79 per cent. This was slightly lower than the running yield of 10-year G-Sec, which was at 6.81 per cent.
“These bonds have lesser liquidity. For Indian investors, the SGrB is equivalent to the normal bonds. A few overseas impact funds usually invest in these bonds as they have specific schemes and funds directed towards the green economy. This month so far foreign investors have sold in G-Secs. So, their investment is currently muted.”
Sandeep Bagla, CEO, Trust Mutual Fund, said, “The issuer typically feels that it should get premium….there are issues of illiquidity (with SGrBs) and….no investor wants to make investment at even one basis point lower.
“Since the government would have decided that it wants a premium, it would have devolved the issuance on PDs. Earlier also they had cancelled an auction because they could not get, I think, what the perceived the premium should be.”
