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Tuesday, June 7, 2016

Green Bonds

 

1. What are green bonds?

They are debt investment instru ment that offers compa nies, municipalities an option to raise money .But, issuers must deploy such proceeds in green or environmental haz ard free projects as stipulated by global standard norms. standard norms.Investors receive fixed interest income.

 

2. Who are the investors?


Investors who have concerns over climate changes prefer to invest, even at a few basis points lower rates as compared to other bonds. They want to pro mote environmental causes by way of invest causes by way of invest ing. They may be pen sion and provident funds or even sovereign funds. Of late, some investors including select hedge funds have already started allocat already started allocat ing dedicated funds for such bonds.

3. Do they offer lower rates of interest?

Compared to other bonds, they offer about 5-15 basis points low er rates. For example, Axis Bank has sold green bonds at a spread or mark-up of 160 basis points over and above the five-year US Treasury yields at about 1.36%. Had it been normal dollar bonds, the bank would have paid about 10-15 bps extra spread.

4. Do issuers stick to standard norms for fund deployment?

Almost yes! But, globally there have been some sporadic cases where issuers allegedly de ployed funds in projects, which are not deemed to be `green'. This leads to court cases filed by investors.

5. How do investors ensure compliance?

Investors should do their due diligence before investing. If the issuer is compliant to better standard, there is unlikely to be any violation of norms.

6. What is the size of green bond market?

According to Bank of America Merrill Lynch data, the green bonds market stood at $121 billion as of April 30, 2016 buoyed by $22 lion as of April 30, 2016 buoyed by $22 billion of issuance year till date.

7. What is the scene in India?

The requirement is huge. The government of India has set tar gets. which will take the total re newable capacity to almost 175 GW by the end of 2022. This requires a massive $200 billion in funding by 2022. But green bonds are no source of cheap and easy money for those who are refused funds via normal routes.

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