Continuum green bond issue shows global players vying for India infra pie

Continuum Wind Energy's six-year bond of $560 mn got over $3 bn pre-order bids on opening in US. Initial price guidance was 4.875%, issue rate could be as low as 4.5%

A day after the Union Budget proposed a substantial capital expenditure push, foreign investors swarmed over a green bond offering from India, indicating a ready stream of money for financing roads, ports, and other infrastructure in the country.  

Continuum Wind Energy’s bond offering of $560 million, with an average tenure of 5.1 years, received $3.2 billion pre-order bids from investors as soon as the issue opened in the US markets. While the initial price guidance was 4.875 per cent, the issue was priced at 4.5 per cent, given the investor interest. The issue was closed the same day it was opened because of the response. 

“The response is mainly due to the Budget announcements, where the government showed its willingness to spend big on infrastructure,” said a banker involved in the deal. “The global investors want to be part of the action,” said the banker, requesting anonymity.  

Deutsche Bank is the lead banker on the transaction. Other banks include Standard Chartered, HSBC, JPMorgan, and Emirates. International Finance Corporation (IFC), the finance arm of the World Bank, is the anchor investor for the deal. 

The bonds are rated BB+ by Fitch Ratings and Ba2 by Moody’s, which makes it “below investment grade” in ratings parlance. But, there is not much of an investable opportunity for global investors. Bankers say the pipeline for green bonds is robust this year as there is a huge amount of global liquidity chasing too few investable options. Green bonds from India can easily tap into the demand at a very cheap rate, say bankers.   

However, demand for high yield bonds from other sectors have thinned in the international market after the Covid-19 pandemic, bankers say. Sectors such as hospitality and airlines have suffered the most during the pandemic and they will struggle to raise funds globally, say bankers. Infrastructure bonds will fill the vacuum if they promise to stick to the environmental, social, and corporate governance (ESG) agenda.  

The Union government plans to spend Rs 5.54 trillion in capital expenditure next year, against Rs 4.4 trillion in the current fiscal, Finance Minister Nirmala Sitharaman said in her Budget speech. State governments will spend even more and the Centre has allowed extra Rs 2 trillion to states for capital spending. The fiscal deficit for the next year is budgeted at 6.8 per cent of the gross domestic product (GDP), mainly due to the higher capital expenditure, and the government will borrow Rs 12 trillion from the domestic market to finance that.   

ReNew Power is also in the market to raise $460 million in green bonds via foreign portfolio investors. The route that ReNew Power is following is a little different from others. It is using an orphan special purpose vehicle (SPV) model in which an FPI raises the bonds to invest back in rupee resources of a domestic company. This is as per the voluntary retention route (VRR) scheme of the Securities Exchange Board of India (Sebi) guidelines. 

Under the VRR scheme, FPIs get over and above their investment limit in Indian bonds if they disclose their intention to invest in the country beforehand.