IFC bond points to offshore rupee push


* World Bank unit to sell rupee bonds to global investors

* Move paves way for liberalisation of Indian currency

* Power Finance and others courting foreign bond buyers

By Manju Dalal

SINGAPORE, Oct 11 (IFR) - The World Bank's private-sectorarm is to offer up to US$1bn of global rupee-linked bonds in amove that will boost the Indian currency's profile in theinternational capital markets.

The International Finance Corp's bond programme, the mostsignificant development to date in the offshore rupee market,comes as India is stepping up measures to attract foreigninvestors and restore confidence in its embattled currency.

It also points to a liberalisation of the closely controlledrupee, in line with comments from the country's newly installedcentral bank governor.

"In these times of uncertainty for the Indian economy, IFChas been given the support and approval by the Indian Governmentto launch the Indian offshore rupee programme," said IFCtreasurer Jingdong Hua.

"The government and the RBI governor are liberalising thefinancial sector by promoting access, and that is the key driverfor the Indian economy to make a difference."

IFC has yet to appoint arrangers, but will issue its firsttranche of offshore rupee-linked bonds in the coming weeks,according to Monish Mahurkar, director of treasury clientsolutions at IFC.

The new bonds will settle in US dollars, but principal andcoupon payments will vary according to the rupee exchange rate.As with standard Eurobonds, they will be accessible viaEuroclear, removing the need for buyers to navigate India'scomplicated quota and registration system, while IFC's Triple Arating will allow investors to avoid any Indian credit risk.

"The IFC deal... is an option, where people can play thecurrency with a very safe underlying credit," said a debtcapital markets banker who specialises in advising governments.

"With it, you can tell who is buying them and then gaugepricing. From there, you can prepare the way for India."


A global rupee-linked bond from IFC will further liftIndia's profile among international investors, giving amuch-needed funding boost to a country that aims to mobiliseUS$1trn in infrastructure investment in the five years to 2017.It will also support the country's balance sheet, as IFC plansto repatriate all the proceeds from the offshore programme toIndia to fund its private-sector investments.

As of June 30 2013, India accounted for US$4.5bn of IFC'scommitted investment portfolio - more than any other country.IFC invested US$1.38bn in India in the year ending in June.

"IFC remains very bullish about the long-term economicprospects of India and this bond programme puts a stamp ofconfidence on India," said Hua.

A global rupee-linked bond from IFC will also promoteinterest in India's capital markets at a time when officials arelooking to lower many longstanding barriers to entry.

The newly installed governor of the Reserve Bank of India,Raghuram Rajan, called for the internationalisation of the rupeein his inaugural speech in September.

"This might be a strange time to talk about rupeeinternationalisation, but we have to think beyond the next fewmonths. As our trade expands, we will push for more settlementin rupees," Rajan said.

"This will also mean that we will have to open up ourfinancial markets more for those who receive rupees to invest itback in. We intend to continue the path of steadyliberalisation."

India also aimed to win inclusion in several global bondindices, Reuters reported on Thursday, a move that would requirethe removal of barriers preventing foreign investors fromaccessing the local government bond market.


Currently, only investors that have registered with India'slocal securities regulator can bid for a quota to invest ingovernment bonds.

The creation of an offshore market for rupee-denominateddebt, however, may be one way for the government to increase thepool of potential buyers without relinquishing control over thelocal market.

Mexico, for example, began issuing peso bonds via Euroclearin 2010, syndicating the debt through foreign banks. Once anoffshore benchmark issue was created, the sovereign would reopenit through auctions until the size and liquidity guaranteedinclusion into several indices.

India may find a similar course of action attractive.

"It would make sense for India to turn to offshore domesticcurrency bonds," the banker said.

Government officials, including RBI governor Rajan, haverepeatedly ruled out an overseas sovereign bond issue, be it indollars or rupees, but other Indian issuers may be more keen onthe Euroclear route.

Several public sector companies, including Indian RailwayFinance Corp and Power Finance Corp, have visited internationalinvestors over the past few months to build support for theirbonds in the local market. Private sector developer L&T Infraand IDFC have also done similar roadshows in the recent past.

The IFC's mandate includes the development of local capitalmarkets across the world, and the multilateral remainsdetermined to play a role onshore in India.

"For a country to achieve its full economic potential, itreally needs to have an open, liquid and deep capital market onall fronts," said Hua.

"This is just the beginning... Our plan is really to workwith the Indian Government for IFC to become a significantplayer in the onshore rupee bond market."

In March, IFC pledged to issue US$4.3bn of rupee bonds inIndia's onshore market over the next three years to boost itslocal lending capacity.

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