The Mumbai Metropolitan Region Development Authority (MMRDA) is set to issue bonds worth INR 14,000 crore, with an initial phase of INR 1,400 crore, to fund infrastructure projects in Mumbai. The bonds, approved for up to INR 50,000 crore, will be secured by land parcels and guaranteed by the state government. This strategy shifts from auctioning plots in the Bandra-Kurla Complex to leveraging capital markets for funding. The bonds, with a 50-year tenure and an option to redeem after 15 years, aim to enhance mobility, housing, and services in the densely populated region, setting a precedent for future infrastructure financing.
The Mumbai Metropolitan Region Development Authority (MMRDA) is taking significant steps to enhance infrastructure in the Mumbai Metropolitan Region (MMR) by seeking a state government guarantee for a bond issuance worth INR 14,000 crore. This move aims to secure funding for essential development projects in one of India's most densely populated areas.
The initial phase of this bond issuance will involve INR 1,400 crore, with plans to assess the market response before proceeding with the remaining amount. In July, the MMRDA received approval to raise up to INR 50,000 crore through bonds, which are classified as secured, redeemable, and taxable non-convertible debentures (NCDs). These bonds will be backed by an unconditional guarantee from the state government, providing assurance to investors.
Historically, the MMRDA has funded various public projects by auctioning plots in the Bandra-Kurla Complex (BKC). However, with limited available plots left in this prime area, the authority is now pivoting towards bond issuance as a viable funding strategy. The funds raised will be directed towards improving mobility, housing, and essential services in the MMR, addressing the growing demands of its residents.
To ensure investor confidence, the bonds will be secured by specific land parcels owned by the MMRDA, with current valuations offering more than double the necessary security cover. This strong backing, combined with the state government guarantee, aims to attract substantial investment. Additionally, the MMRDA plans to create an Interest Service Reserve Account (ISRA) to manage interest payments and maintain liquidity for unforeseen circumstances, particularly regarding land asset monetisation.
The proposed bonds will have a long tenure of 50 years, with a call option allowing MMRDA to redeem them after 15 years, providing flexibility in financial management. This strategy not only aims to secure funding for immediate projects but could also set a precedent for other regional bodies in India looking to finance infrastructure through capital markets.
While the MMRDA currently lacks the authority to generate tax revenue, it plans to rely on land deals and asset monetisation, including the Metro network, to bolster its financial standing. The authority is optimistic about generating positive cash flow from various revenue sources over the next 25 years. The bond funds, alongside a loan limit of INR 60,000 crore, will serve as a financial buffer to mitigate delays in project revenue inflows.
The success of this bond issuance could redefine public infrastructure financing in India, opening new avenues for funding large-scale projects. As urban areas continue to grow, innovative financing strategies like this will be crucial in ensuring that infrastructure keeps pace with development needs.
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