1. RBI proposes cap on global R-denominated bond yield

RBI proposes cap on global R-denominated bond yield

Companies can issue global rupee bonds of minimum average three-year maturity and may price such global rupee bonds at not more than 500 bps above the yield of the domestic govt bond of corresponding maturity, RBI has proposed

By: | Mumbai | Published: June 10, 2015 12:17 AM

The Reserve Bank of India (RBI) has proposed that companies eligible for borrowing foreign exchange loans may issue rupee-denominated bonds in the overseas market.

In draft norms released on Tuesday, the central bank proposed that companies can issue global rupee bonds of minimum average three-year maturity and may price such global rupee bonds at not more than 500 basis points above the yield of the domestic government bond of corresponding maturity.

However, the central bank proposed that Indian banks shall not be allowed to invest in such bonds.

“The subscription, coupon payments and redemption may be settled in foreign currency. The proceeds of the bonds can be parked as per the extant provisions on parking of ECB proceeds,” said the central bank.

Issuers can also offer call and put options but these will not be excercisable before completion of the minimum three-year maturity period, the central bank has proposed.

Investors in such bonds will be eligible to hedge their exposure to foreign currency as well as credit risk through various derivatives, the RBI said.

International Financial Institutions will need prior approval of the RBI if they intend to spend the proceeds of rupee bonds in markets other than India. However, if the proceeds are intended to be spent in the country, issuers do not require the nod of the central bank.

In the bi-monthly monetary policy review earlier this month, the RBI had indicated that it would broaden the scope of global rupee bonds and allow Indian companies to issue these.

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