India’s capital markets received a timely shot in the arm yesterday with the planned launch of a $1 billion rupee-denominated bond.
The first tranche of the sale, organized by the International Finance Corporation (IFC), the World Bank’s private sector arm, in alliance with India’s central bank and economic ministry, should be completed within two weeks, with the rest of the sale finalized before the year is out.
The new bonds will be issued offshore, with funds repatriated and then used to support private sector economic activity. “Foreign investors have been retreating from India of late,” says Hua Jingdong, vice president and treasurer, treasury and syndications at the IFC. “So for us to issue this bond offshore and bring it back onshore, we are bucking the trend.”
The IFC and its partners hope to sell investors on the double whammy of a super-safe bond issued with government and multilateral backing and a generous yield likely to be several hundred basis points above US Treasury yields.
“By 2030, if all goes well, India and China, along with the US, will make up the world’s top three economies,” said Hua. “By then, we would want the rupee to be as freely tradable as the US dollar. This is a step in that direction.”
The new asset class mirrors the creation of “panda bonds”, onshore debt denominated in Chinese renminbi first issued in 2005. Following a summer of turmoil, which saw onshore investors flee the country, Indian leaders have been keen to find fresh ways to convince capital to return to, and remain in, Indian-domiciled securities.
India is in dire need of good news. A slowing economy, rising inflation, and yawning fiscal and current account deficits have hobbled an economy until recently seen as a rising star.
The recent appointment of Raghuram Rajan as India’s central bank chief, along with implicit government support, helped propel the bond swiftly to market. Monish Mahurkar, a director of the IFC’s treasury capital solutions team, said the entire process took less than eight weeks.
Leaders in New Delhi hope the new bond will go some way to reversing the outflow of capital, and drawing more foreign institutional investor capital into rupee-denominated debt. “The crisis over the summer certainly helped focus people’s minds,” said the IFC’s Hua.
The chaos that roiled emerging markets in general and India’s economy in particular over the summer months injected urgency into government thinking. A fiscal deficit exacerbated by capital outflows needed to be reversed and investors needed to be convinced again of India’s future potential.