Indian Railway Finance Corporation (IRFC) — the finance arm of Indian Railways — has sought bids from bond arrangers for issuing rupee-denominated foreign bonds, sources in the company and a bond arranger told FE.
“We have sent request for proposal (RFP) to appoint arrangers for our overseas rupee-denominated bond issue. We will invite bids in June after which we may finalise the arrangers for our issue,” said the source.
However, RBI is yet to bring out detailed guidelines on rupee-denominated overseas bonds. In April monetary policy, the regulator had proposed companies may be allowed to issue rupee-denominated bonds in offshore markets. “There are aspects that need clarity,” said a bond arranger.
“All processes will depend on the RBI’s guidelines and approvals. As far as the effectiveness of this route is concerned, pricing is a major factor, but we must take into account investor diversification we get when we go for rupee-denominated overseas bonds,” said an IRFC executive.
In April, the company had received the board approval to raise $1 billion or close to R6,300 crore through external commercial borrowing. The company’s overall borrowing target for this fiscal is R17,655 crore. It is yet to be seen how the pricing for the bond issues will pan out as it would be the debut rupee-denominated bond from a domestic entity.
Typically, when an issuer raises funds in dollar or other currency through offshore bonds and wants to utilise that fund in India, the company has to shell out the cost of swapping the currency into rupee which depends on the Mumbai Interbank Forward Offered Rate (MIFOR) — at present in the range of 6.9-7.9%.
In the case of Rupee-denominated bonds, the issuer can do away with the entire swapping cost as the cost of conversion lies with the investors.
“Even if IRFC tries to raise funds via domestic market, it would be able to issue bonds at a price close to 8.40% in the current market when the yield is seeing so much volatility,” said a bond arranger.