This is the era of smart cities and urban development authorities who are entrusted with authorities and powers to do the urban development works and thus relegating the municipal corporations to secondary position in many cases. This might have prompted the Securities and Exchange Board of India (Sebi) to initiate actions to make suitable amendments in its ILDM Regulations. A Consultation paper was issued in May, calling suggestions from the stakeholders.
The Sebi Consultation Paper, “Review of SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015”, says “..entities/bodies such as urban development authorities and city planning agencies etc. perform functions, such as planning and execution of urban development projects/schemes, which are akin to those being performed by a municipality.” While these bodies carry out functions which are similar to the functions carried out by a municipality, they are not defined as municipalities under Article 243Q of the Constitution of India, thereby rendering these entities as ineligible to raise funds via issue of debt securities under the ILDM Regulations.
Under the smart cities mission launched by the Ministry of Housing and Urban Affairs, the implementation of projects is done by a Special Purpose Vehicle (SPV) to be set up at city level in the form of a limited company under the Companies Act, 2013 and promoted by State/Union Territory and Urban Local Body (ULB).These SPVs have been set up to provide functions such as adequate water supply, sanitation, sustainable and inclusive development of cities etc. Thus, though these SPVs perform tasks, similar to that of municipalities, they are not defined as municipalities under Article 243Q of the Constitution of India and thus they also become ineligible to raise funds via issue of debt securities under the ILDM Regulations.
To enable these institutions to raise funds just as well-functioning municipalities do, SEBI is now proposing to widen the definition of “Issuer” in ILDM Regulations to include the following:
- any Statutory Body or Board, Authority, Trust or Agency established or notified under an Act of Parliament or an Act of the State Legislature or any Special Purpose Vehicle notified by State Government or Central Government, subject to the condition that these entities perform one or more functions listed in the Twelfth Schedule of the Constitution of India;
- any structure set up by the State Government under the Pooled Finance Development Fund Scheme of the Government of India, subject to the condition that Pooled Finance Development Fund raises funds for the purpose of financing one or more functions listed in the Twelfth Schedule of the Constitution of India.
Sebi had issued its Issue and Listing of Debt Securities by Municipalities (ILDM) Regulations nearly five years ago and since then seven municipalities have raised nearly Rs 1,400 crore by issuing their debt securities, which are commonly known as ‘Muni Bonds’. The SPVs set up under government’s Smart City initiative undertake functions like ensuring adequate water supply, sanitation, sustainable and inclusive development of cities etc, thus performing tasks similar to that of municipalities involving huge capex. The Sebi’s new initiative will enable these Smart City SPVs to raise further funds and implement the projects without delay.