Case study on AMC's pioneering bond issue

Abstract

A nation with scarce resources, large geographic extent and scattered industrial and social developments needs to rely upon the local government for its infrastructure developments. The limitations inherent in Financial Institutions and Banks lending to infrastructure projects make it imperative to have alternative mechanisms for infrastructure financing. Hence, in the post liberalization era, the focus has changed dramatically from nurturing subsidized government run institutions with cheap credit to developing institution capacity and improving institutional performance. This would enhance the credit quality of the local government to raise long term funds in the capital market. In India, Ahmedabad Municipal Corporation (AMC) has taken the lead to break the traditional view of the Municipal Corporations - portrayed as epitome of financial inefficacy- by restructuring its organizational and operational structures. With its improved performance it was successful to issue the innovative debt instrument, Municipal Bond, in the capital market. The present study is an endeavor to explore the processes and methods of issuing the new instrument in the light of experiences of AMC. After an in-depth analysis of the various steps and processes involved in issuing the municipal bonds, the study has developed a general guideline for the future Bond Issuers as well as for the Investors keeping in view the dimensions of security of the investments through a systematic procedure of credit rating.