IFC, a member of the World Bank Group, has launched a $1-billion offshore bond programme, touted as the largest of its kind in the offshore rupee market, to strengthen India’s capital markets and attract greater foreign investment.
Under the programme, IFC will issue rupee-linked bonds and use the proceeds to finance private sector investment in the country.
As Jin-Yong Cai, IFC’s CEO, noted: “Vibrant domestic capital markets ensure access to long-term, local currency finance for the private sector, the key engine of job creation in emerging markets. IFC’s offshore bond programme will help bring depth and diversity to the offshore rupee market and pave the way for an alternative source of funding for Indian companies.”
India accounted for $4.5 billion of IFC’s committed investment portfolio as of June 30, 2013, more than any other country. In FY13, IFC invested $1.38 billion in India, to support low-income States.
The aim was to promote inclusive growth, address climate change impact and support inter-regional trade to boost growth of small businesses. The investment was 43 per cent over the previous year.
In a statement, Arvind Mayaram, Secretary of Economic Affairs, Ministry of Finance said, “With the launch of a rupee bond in the global markets, IFC is turning a new corner. This is a new initiative for the intermediation of international savings for development in India. It will also help deepen the capital markets in India and establish an Indian rupee benchmark in the global markets.”
Over the years, IFC has issued bonds in 13 local currencies, including the Brazilian real, the Chinese renminbi, the Nigeria naira, and the Russia ruble. IFC has provided over $10 billion in local currency financing across 58 currencies using a variety of financing tools.
Monish Mahurkar, IFC Director, Treasury Client Solutions, Washington DC, said that IFC expects to initially issue 2-3 years tenor bonds given their current understanding of market appetite. Over time they could possibly issue longer tenors going out perhaps to 10 years, he said. IFC will target international investors such as central banks, pension funds, and other institutional investors globally. Bonds will be issued in a series of tranches over the next few months and IFC hopes to issue the first tranche before the end of the calendar year.
IFC will invest the proceeds across a range of priority sectors which may include infrastructure, increasing access to financial services for small and medium businesses, health, and others, he said. Asked about the expected response given the fact that currency risk is borne by the investor, Monish said the investor also gets a coupon that is attractive enough to compensate for the currency risk - so generally if the bond is priced “right” we hope to get a very good response given our excellent credit. He did not however say what that coupon rate would be.
IFC’s advisory services help small businesses access finance, facilitate public-private partnerships and promote growth of sustainable enterprises.
Of the 39 investment projects in India, ten were in low-income States totalling $273 million. Nearly a third of IFC’s investments in India in FY13 were mobilised from investors like DEG, FMO, Mizuho Corporate Bank, Proparco, Rabobank, and Standard Chartered Bank.
IFC combined these investments with a range of innovative advisory programmes, leveraging the power of the private sector to create jobs and tackle development challenges facing the country. In India, IFC is working on 66 advisory projects with a total value of $51 million.
IFC’s notable investments include a repeat investment in OCL India for a new cement grinding plant in West Bengal, as also Government-owned utility PowerGrid to interconnect the national grid and transmit power. To promote clean growth, IFC has supported renewable energy players such as Green Infra, Inox Renewables, and Azure Power.
Three quarters of IFC’s advisory programme in FY 13 was in India's low-income States such as Odisha, where IFC expanded State-level partnerships to support regulatory reforms and mobilise investments.