Beruflich Dokumente
Kultur Dokumente
Ashish Agarwal Gaurav Shah (A056) Jatinder Bir Singh Tuli (A062) Nikita Malpani (A046) Priya Chhabria (A017) Urvashi Jha
Issued by
Special-purpose districts
Redevelopment agencies Public utility districts
Interest Payment Exempt from the federal income tax Exempt from the State income tax
Yield usually lower than taxable bond
>> NOT ALL MUNICIPAL BONDS ARE TAX-EXEMPT<< Free to trade anytime once they are purchased by the investor Investment in state and local government projects
Issuer
Cash
Promise to Repay Interest & Face value
Investor
Special Guarantee
Municipal
Bonds
Principal + Interest
ULBs
Counter Guarantee
Role of Trustees
Escrow
AMC
Guarantee by DFIs/MDBs
Bonds Principal + Interest ULBs Loan/Bonds Project Cash Flows Escrow Debt Reserve Fund
P& i secured by faith & credit & taxing power of issuer Issued by municipal entities to fund variety of expenses
Revenue Bonds
P & i secured by the revenue derived from tolls, charges or rent Issued by special authorities created for particular purpose
Insured bonds Insured by policies written by commercial insurance companies Intended to provide for the insurer to pay P & i payment in the event the issuer defaults Creditworthiness of both the insurer and the issuer Taxable municipal bonds Interest is taxable Build America Bonds (BABs) ,introduced in 2008 financial crisis 35% federal rebate on interest costs BABs only subsidize an issuer's borrowing cost No implied backing from the federal government
Zero-coupon bonds Issued at a discount, with the full value, including accrued interest, paid at maturity. Interest income may be reportable annually Original-issue discount bonds Issued at a price below face value (par) which qualify for special treatment under federal tax law. Pre-refunded bonds Result from the advance refunding of bonds that are not currently redeemable Goal to provide present-value savings to the issuer The escrow account is most often funded with U.S. Treasuries considered relatively safe
Escrowed-to-maturity (ETM) bonds When the proceeds of a refunding issue are deposited in an escrow account for investment in an amount sufficient to pay the principal and interest on the issue being refunded. Housing bonds Securities backed by mortgages and mortgage loan repayments. Can be called at any time from the prepayment of principal on the underlying mortgages
Municipal notes Short-term debt obligations that usually mature within a year or less Municipalities issue notes to generate stable cash flow while they wait for other expected revenues. Conduit bonds Revenue bonds issued by state agencies called "conduit issuers that act on behalf of the actual borrowers Issued for projects such as non-profit hospitals, housing developments etc. The third-party, conduit borrowernot the issuing agencyis responsible for interest payments and principal repayments
1st general obligation bond was issued by the City of New York for a canal in 1812 The US Municipal Bond market is $2.2 trillion strong Forms nearly more than 12% of the total debt market
One of the highest yielding debt instruments Urban infrastructural projects are funded through issue of municipal bonds
Secondary market active with sufficient liquidity Tax exempt lower the cost of borrowing The credit rating mechanism is very robust
Current Scenario
Raised merely Rs. 850 Crore since its inception Forms nearly 10% of the debt market in the US Only Tamil Nadu and Karnataka have raised funds through pooled finance route.
Credit Rating
CRISIL ICRA
Finances Operations
Finances, Accounting, expenditure, liquidity Major Revenue heads Service delivery and funding arrangements
CARE
Fiscal profile of the government and its administrative capability Profile of project Risk factors
Credit Ratings for the municipal corporations of 63 JNNURM are released regularly and 40% of them have been rated as investment grade.
Concerns
Sense of distrust, Corruption, Etc
Municipal Bonds
Lack of Information
The urban expenditure so far has been financed significantly out of the budgetary support
Financing needs will be met by Urban local body (ULB) own revenues and the external financing needs through debt financing.
The Constraints..
Weak balance sheets: The Urban local bodies depend largely on the transfers from government.
Measures to strengthen the own revenues of Indias local bodies: a) Empowering ULBs to levy exclusive taxes, most importantly property tax b) A more broad based revenue sharing by states with ULBs c) Formula based devolution of state revenues based on recommendations of State Finance Commissions.
Benchmark and yield curve discovery: Some of the biggest and richest municipal corporations run a surplus and therefore do not need to access the debt market. Mumbais BMC, New Delhi Municipal Corporation, or various other big corporations rely on loans or grants. Consequently, there are no benchmark securities that may guide the investors regarding the associated risk premiums and against which the smaller municipal corporations may borrow.
Credit Enhancement: Institutional investors (e.g. Pension Funds, Insurance) are stipulated to not invest in bonds below a certain credit rating.
A Pooled Finance Development Fund (PFDF) of Rs 400 Cr ($100 mn) for the 10th Five Year Plan period - set up to help ULBs finance their investment needs. Ratings enhancement facility through a Credit Rating Enhancement Fund (CREF) Expected to reduce the costs of capital and encourage ULBs enter the Municipal debt market
Entity (SPFE)
Purchase guarantees from financial institutions willing to underwrite the risk of a cash-flow shortfall. Credit protection : mitigate the risks lower the cost of capital encourage the growth of Municipal debt market in India
Advantages of Pooled Financing mechanism: 1. Helps risk diversification 2. Less economically viable, but socially useful projects, can bandwagon on the more bankable projects 3. By pooling together a number of projects, it can help finance more projects
Measures to enhance disclosures on behalf of borrowers Market infrastructure to enhance secondary market liquidity need to be taken.
Municipal Authorities
Work towards budgeting and accounting systems
Disclosure of information in public and allowing institutional investment in long gestation investments
Prescriptions regarding interest and principal payment Specification of purposes for bond issue