RBI allows companies to issue rupee bonds in overseas markets

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Mumbai | Published: April 8, 2015 12:09:18 AM

The RBI on Tuesday announced that companies can now issue rupee bonds in overseas markets, a privilege previously extended...

The RBI on Tuesday announced that companies can now issue rupee bonds in overseas markets, a privilege previously extended only to a few international financial institutions. Foreign bankers facilitating such transactions believe that while issuances should begin over the next few weeks, it won’t see a rapid take-off.

“The appetite for rupee debt among international investors is a welcome development. In view of this, it is proposed to expand, in consultation with the government, the scope of such bond issues by the international financial institutions as also to permit Indian corporates eligible to raise external commercial borrowing (ECB) through issuance of rupee bonds in overseas centres with an appropriate regulatory framework,” RBI’s first monetary policy statement for fiscal 2016 said.

“Overseas investors would like to invest in local market, except there are couple of issues — limits on how much they can invest in FPIs in local markets and, second, buying a local corporate bond or government security will require them to set up infrastructure in terms of local settlement, etc,” said Ananth Narayan, regional head of South Asia financial markets, Standard Chartered.


Narayan also said that rupee has been a stable currency over the last 1.5 years with a high yield. “Foreigners typically would love to hold a currency that is high yielding and, at the same time, does not depreciate much against the dollar. In fact, the absolute return adjusted for currency movement has been the highest in the rupee,” Narayan said, adding that there are some investors who would prefer to hold bonds in rupee rather than dollar for the same reasons.

When governor Raghuram Rajan was questioned about companies not hedging their forex exposure, he said that companies have to realise that “volatility can happen anytime”.

“This is where I think the possibility of them raising money in rupee bonds comes in. Using that would be an alternative to borrowing ECBs in dollars and holding them unhedged,” Rajan said.

“This would be a welcome move as both pricing and currency risks will be addressed effectively, apart from opening a window for rupee-denominated tradeable instruments in international financial markets,” said VS Parthasarathy, CFO, Mahindra & Mahindra.

ONGC director, finance, AK Banerjee said with the Indian economy being one of the few bright spots in the global economy, rupee bonds could become a popular instrument in raising funds.

“Moreover, with a sizeable Indian diaspora spread across the world, Indian companies could tap into this opportunity to raise funds from a fresh set of investors,” he added.

Larsen & Toubro’s chief financial officer R Shankar Raman, however, said it needed to be clear whether funds raised through these instruments can be repatriated into India for meeting companies’ domestic financial requirement.

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