Sources say while the current issue is meant for offshore investors, the upcoming issues will be aimed at local investors and will be used to finance IFC-funded infrastructure projects in India. IFCs investments in India include infrastructure, logistics, financial services, health and education, agribusiness and manufacturing.
While the exact yearly break-up of the upcoming bonds is not yet known, officials in the finance ministry say IFC has sent a letter to officials in the capital markets division of the ministry, outlining plans for the upcoming issues. Apart from the investors targeted, the basic structure of the bonds is expected to remain the same.
Monish Mahurkar, director of IFCs treasury client solutions in Washington DC, told FE about the current $1 billion issue: Bonds under the programme will be issued in a series of tranches and offered and settled in dollars. The initial subscription, repayment of principal and coupon will be in dollars but tied to the dollar-rupee exchange rate. So for the investor, the bond offers the convenience of a dollar-denominated bond, but the proceeds are linked to the dollar-rupee exchange rate. Mahurkar added that IFC will convert bond proceeds from dollars into rupees on the domestic spot exchange market. The biggest advantage of any currency-linked bond is that the risk borne out of exchange rates is borne by the buyer and not the issuer.
Speaking about the tenure of the current issue, Mahurkar said, We initially expect to issue two-three years tenor bonds given our current understanding of market appetite. Over time we can possibly issue longer tenors, going out perhaps to 10 years. He, however, added that IFC still did not know the yield rate on the issue.
Off-shore issuance by a triple-A investor such as IFC will crowd in foreign investors to invest in rupees, especially those who invest only in highly rated bonds and, therefore, do not directly invest in India. Deepening the off-shore market will also provide Indian companies that generate revenues in rupees with an alternative source of funding in international markets, without incurring foreign exchange risks, Mahurkar said.
IFCs offshore bond programme will help bring depth and diversity to the offshore rupee market and pave the way for alternative source of funding for Indian companies, Jin-Yong Cai, IFC CEO, had said. The current IFC issue and similar future bond programmes will go a long way in making funds available for infrastructure projects.
India is seriously weighing the option of joining the global bond indices for emerging economies to boost capital inflows and shore up the rupee. Government officials are planning to work out modalities with investment bankers who run such indices globally.