India should pause sovereign bond plans

India’s plan to sell its first international bond has been caught in a battle of wills between the ministry of finance and the government. While any issuance is likely to be received well by the market, the sovereign should hold off on a deal until it is ready to present a united front to investors.

  • By Morgan Davis
  • 29 Jul 2019
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India’s announcement in early July that it plans to sell an international bond has excited investors. The country has never sold an offshore note before, leaving investors to rely on sub-sovereign borrowers such as the Export-Import Bank of India to get as close to a government bond as possible. A direct sovereign deal will quench some of their thirst for more Indian exposure.

But now some of the initial excitement around the proposed borrowing has died down, it has become apparent that India is not ready to keep up with expectations.

The south Asian country’s ambition to raise up to $10bn, possibly in one transaction, is jarring. In addition, its preference for yen or euros for the trade, which could come in October, rather than the more liquid dollar market has also raised some concerns.

But beyond that, it’s the apparent disparity between the country’s government and the ministry of finance that is a big red flag.

The prime minister’s office has already voiced its scepticism over such a big foreign currency sale, saying instead that it would prefer that the bonds be sold in the offshore rupee market. Many have argued that India isn’t ready yet for foreign currency exposure on such a large scale.

But an international rupee deal will put a dent in India’s size ambitions, given the market’s limited liquidity. Likewise, it changes the transaction from one that would attract nearly every emerging market debt investor to one that appeals only to a small group.

It is also clear that the prime minister’s office is not going to let the ministry of finance proceed with the bond sale without a great deal of noise first. Subhash Chandra Garg, the finance secretary behind the debt sale, was unceremoniously booted from his job and moved to another government department three weeks after India’s announcement of the bond plans in its annual budget. He has since said that he will seek early retirement.

At the very least, Garg’s departure should raise a few eyebrows among investors. It may be a sign of more negative news to come.

It helps that finance minister Nirmala Sitharaman seems to have doubled down on her department’s promise of an overseas bond. She told local media on Monday that she is not doing a further review with stakeholders before proceeding with the plans, despite the rumoured request from the prime minister’s office.

Sitharaman has every right to stand strong in the face of political pressure to back down, even though a $10bn size in one deal is rather unrealistic. But the proposal is on shaky ground, and probably won’t stabilise in time for an October sale.

Of course, many investors will be tempted to buy into an India trade regardless of the situation, as the notes will offer yield, as well as clear rarity value. But India should take a step back for now.

India’s first foray into the foreign bond market is going to be a landmark deal that investors and bankers will remember for a lifetime. It’s incumbent on everyone involved to wait until the deal itself can take centre stage, rather than the squabbles it is causing between politicians.

  • By Morgan Davis
  • 29 Jul 2019

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 23.56
2 Industrial and Commercial Bank of China (ICBC) 16.09
3 China Merchants Securities Co 11.38
4 Agricultural Bank of China (ABC) 6.90
5 HSBC 5.75

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 CITIC Securities 10,473.46 57 7.30%
2 Goldman Sachs 10,466.14 46 7.30%
3 UBS 8,351.15 61 5.82%
4 Morgan Stanley 8,168.31 54 5.69%
5 China International Capital Corp Ltd 7,763.29 49 5.41%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 26,241.68 231 8.39%
2 Citi 20,661.93 146 6.61%
3 JPMorgan 15,433.82 108 4.94%
4 Standard Chartered Bank 14,190.58 144 4.54%
5 Morgan Stanley 11,315.38 77 3.62%

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