RPT-Indian city of Pune moves to revive municipal market with bond sale


(Repeats story issued late on Monday with no changes to text)
    By Rafael Nam and Krishna MerchantMUMBAI, June 19 (Reuters) - Pune, a city in India's western
state of Maharashtra, sold $31 million in 10-year bonds on
Monday, as cities in Asia's third-largest economy look to tap
investors for the first time in a decade to finance
infrastructure projects.
    Though small, the issuance is a key first step in India's
plan to revive a municipal bond market that saw its last sale in
2007. The funds raised will help pay for its ambitious "Smart
Cities" project that aims to modernise 100 cities by 2020,
including by improving water supply and transportation.
    Pune Municipal Corp sold the debt at 7.59 percent, raising 2
billion rupees  ($31.04 million) SBI Capital Markets, the sole
arranger, said. That compared with around 7.40 percent for a
similar maturity bond from Maharashtra state.
    The proceeds will be used to provide uninterrupted municipal
water supply in the city, up from 4-6 hours currently.
Bondholders will be paid interest from money raised from
property taxes.
    Although India is planning to spend up to 48 billion rupees
in its Smart Cities project, it needs cities such as Pune to
raise up to 75 billion rupees from bond investors.
    Pune plans to raise a total of 23 billion rupees in the year
to March, while New Delhi and Hyderabad are among other cities
looking to raise debt, bankers and analysts said.
    Subodh Rai, senior director and head analytics at CRISIL
Ratings, said it was important for India to develop its
municipal bond market.
    "We are talking billions of dollars that need to be poured
into urban infrastructure, and municipal corps cannot be
dependent on the state or central governments to fund all of
these projects," he said.
    India has seen only 11 billion rupees worth of municipal
bond issuance over the previous two decades, according to think
tank Pahle India Foundation, which estimates only 1 percent of
urban bodies' requirements are funded by municipal bonds
compared to around 10 pct in the United States.
    Seeking to change that, capital markets regulator Securities
and Exchange Board of India this year eased rules for cities
selling bonds, while the government has said it will subsidise
part of the interest payments.
    But many challenges remain, with bankers and analysts
warning most cities in India typically have antiquated or opaque
accounting methods, while infrastructure projects suffer from
frequent delays or cost overruns that can jeopardise the ability
to pay bondholders.
    "Most municipal corporations will not be able to raise the
required amount of money from capital markets based on their
balance sheets," said Sunil Kumar Sinha, principal economist and
director of public finance at India Ratings.
($1 = 64.4400 Indian rupees)

 (Editing by Jeremy Gaunt)
 ((rafael.nam@thomsonreuters.com; +9122-6180-7425; Reuters
Messaging: rafael.nam.thomsonreuters.com@reuters.net))


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