Should there be a minimum size for municipal bonds?

The Rajamahendravaram municipal corporation is planning to raise Rs. 25 cr of bonds to finance two solar power projects to supply drinking water to households and treated water to the industries, and a waste to wealth creation project.

The commissioner's dynamism is praise worthy and those of us who are familiar with Rajahmundry will feel pride in our town pioneering municipal bonds.

Still, is Rs. 25 cr an optimum size for a municipal bond? Small amounts like these are best raised as bank loans. Given the transaction costs such as publishing the information memorandum, appointing an investment banker, debenture trustee, listing the bond on the stock exchange, a minimum size of Rs. 50 cr would be necessary for a bond issuance.

The RMC's website does not have its budget and annual financial statement. To access the bond market, municipalities must prioritize transparency, with the first step being the publication of financial statements and service-level data.