The Government of India’s first ever issuance of green bonds met strong demand, with orders exceeding the offering size by more than 4 times, earning the bonds a 5-6 basis point “greenium,” or a favorable yield spread relative to similar issues lacking green credentials, according to results released by the Reserve Bank of India (RBI).

The initial issuance this week raised 80 billion rupee (US$980 million) with both 5 and 10-year bonds, forming part of a 2-part offering aimed at raising approximately US$2 billion to support green infrastructure projects aimed at reducing the carbon intensity of the economy. The second 80 billion rupee round is scheduled for early February.

According to the auction results released by the RBI, bids for the offering reached slightly over $4 billion, and the green bonds were issued with a 7.10% yield for the 5-year, and 7.29% for the 10-year, relative to yields of 7.16% and 7.35%, respectively, for government bonds with similar maturities.

According to media reports, most of the demand for the offering came from domestic buyers, while foreign demand was more limited.

India’s entry into the green bond market follows the government’s introduction in recent years of a series of climate-related goals, including a pledge made at the 2021 COP26 climate conference to reach net zero by 2070. In August 2022, the government followed up with a strengthened Nationally Determined Contribution (NDC), including commitments to reduce emissions intensity by 45% and to transition to approximately 50% electric power from non-fossil-based sources.

India’s goals include reaching 500 GW of non-fossil energy capacity and reducing carbon emissions by one billion tonnes by 2030. Earlier this month, the cabinet approved India’s National Green Hydrogen Mission, its strategy to establish India as a major green hydrogen production hub, with plans to reach 5 million tonnes of production, along with over $2 billion in incentives for related infrastructure and production.

In November, the government published its Sovereign Green Bonds framework, outlining eligible use of proceeds from green bond issuances, as well as project selection and evaluation, management of proceeds, and reporting obligations. The framework includes a broad range of eligible green project categories, including renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, sustainable management of living natural resources and land use, and terrestrial and aquatic biodiversity conservation.

Additionally, the framework also lists a series of excluded projects, such as those involving the extraction of fossil fuels. The Excluded Project category also includes nuclear power generation and hydropower plants larger than 25 MW.

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