Sovereign green bonds set to go to auction today; check out expected yield, other features

The first tranche of Sovereign Green Bonds (SGrBs) is set to be auctioned today with yields expected to be in the range of 7.15-7.40 per cent. These are defined as risk-free bonds as the payments on these bonds are not conditional on the performance of the eligible projects and the investors in these bonds do not bear any project-related risks. Currently, the 10-year-government bond is offering 7.34 per cent yield. 

“Green bonds are government bonds in a new avatar. Green bonds may offer yields similar to non-green bonds, and hence anyone looking to invest in Government bonds can look to buy into green bonds as well,” says Sandeep Bagla, CEO, TRUST Mutual Fund. “These are risk-free bonds as RBI can print Rupees and repay the principal. Yields should be in the range of 7.15-7.40 per cent,” adds Bagla.

The Sovereign Green Bonds framework was announced on November 9, 2022, and is set to be put into action today with the central government launching bonds in two tranches with an aim to raise Rs 16,000 crore within a month. As per the calendar, 5-year and 10-year green bonds worth Rs 4,000 crore each will go under the hammer on January 25 and February 9.  

Individual investors can also place bids as per the non-competitive scheme through the RBI Retail Direct portal. 

“The auction will be conducted using uniform price method. Both competitive and non-competitive bids for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system on January 25, 2023 (Wednesday). The non-competitive bids should be submitted between 10.30 am and 11.00 am and the competitive bids should be submitted between 10.30 am and 11.30 am. The result will be announced on the same day and payment by successful bidders will have to be made on January 27, 2023 (Friday),” states the RBI circular.

Should one buy it? 

Green Bonds are issued for mobilising resources for green infrastructure, which means it deploys the mobilised funds in public sector projects that help in reducing carbon intensity of the economy. The only difference between green bonds and other ordinary government-issued bonds is that the funds raised from investors are only used to support initiatives that have a good influence on the environment, such as green construction and renewable energy. Primarily these bonds aim to contribute to the planet and its sustainability.

“If one has to look for positives, one could be assured that the money invested is being used for eco-friendly projects and reduces the overall carbon footprint a bit. The negative could be that these bonds could become illiquid as the issuances will be lesser than non-green bonds and hence may be difficult to sell if the investor needs to sell the bond before maturity,” says Bagla

“As far as the returns on these bonds are considered, Green bonds traditionally are issued globally at higher premiums leading to lower returns. Since they are being issued with a sovereign guarantee, returns could be even lower,” says Col. Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm. 

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