Blue bonds: India’s new ocean of finance

Account subscription benefits alongside Premium Stories, Editorials, Opinions and more. Unlock these with Subscription

India’s maiden blue bond, under the Sagarmala programme, seeks to bring the ocean economy to the capital markets, even as doubts linger on its timing given the signs of hardening global interest rates.

As much as ₹1,000 crore is slated to be raised through a blue bond issuance by Sagarmala Finance Corporation Ltd. (SMFCL), the financing arm associated with the Sagarmala programme, one of the critical parts of India’s mammoth multimodal infrastructure programme called PM GatiShakti. The funds are intended to support maritime projects.

The proposed thematic bond issue by SMFCL is small in size compared with Sagarmala’s overall investment pipeline, as it represents only 0.17% of the total identified project cost of more than ₹6 lakh crore.

However, its importance is in the precedent it creates in the country because infrastructure financing -- which has a long gestation period -- has traditionally depended on bank loans, budgetary support and conventional bonds.

Like a conventional bond, an instrument through which an issuer raises money from investors and promises periodic interest payments and to repay principal at maturity, a blue bond follows the same structure but adds an environmental element: the proceeds must be for clearly identified water- and ocean-related projects.

There is also additional responsibility for greater disclosure. Issuers need frameworks explaining where the money will be invested, impact measurement mechanisms and periodic reporting to eschew bluewashing.

The market regulator, the Securities and Exchange Board of India, has already recognised blue bonds as part of sustainable finance instruments and highlighted their potential for the country’s blue economy.

The government aims to increase the maritime sector’s contribution to GDP significantly by expanding ports, inland waterways, shipbuilding and coastal infrastructure, requireling massive capital requirements.

For SMFCL, the bond has a strategic purpose of correcting asset-liability mismatch as its loans for infrastructure projects span around 12 years, while it has shorter existing borrowing tenure.

A longer-duration bond -- which can provide a better match between the maturity of liabilities and assets -- could diversify borrowing sources and attract investors as insurance companies, pension funds and global sustainability-focused funds.

Launched in 2015, the Sagarmala programme has about 845 projects with an estimated investment of ₹6.06 lakh crore. Around 315 projects valued at nearly ₹1.56 lakh crore have already been completed, while the remaining projects are either under implementation or development.

Not all projects under Sagarmala will qualify for blue bond financing; only those demonstrating measurable ocean or water-related sustainability outcomes are eligible.

Sagarmala has identified more than 200 projects under coastal shipping and inland water transport. Segments that ought to benefit are Ro-Ro and Ro-Pax ferry services; inland water terminals; coastal cargo movement; and cruise infrastructure.