International Finance Corporation (IFC), a private sector lending arm of the World Bank group, is to raise Rs 15,000 crore ($2.5 billion) in five years, through onshore rupee-denominated bonds and currency swaps, to fund infrastructure projects in this country.
Such an issuance of bonds in India by IFC hasn't been done before. It is also aiming at developing a long-term debt market here.
Various segments of infrastructure projects would be funded if there were no environmental and social issues involved. The recent focus has been on renewable power projects, an IFC official said.
Type of instrument
"We are targeting only infrastructure projects, which need very long-term money. So, we will issue long-tenor bonds. It could be up to 30 years but you have to see the interest rate reality in this country," he said.
He said even if the project concerned needed 30-year year money, it might not want to lock in for 20 years at today's fixed rate. "It may say we need 30-year money but give me the rate of only, say, 10 years, and then we will roll over. So, it has to match the need of the project," he explained.
He said the size and the number of tranches will be decided on the basis of project needs. "We are not putting any restrictions and the pipeline is still cooking."
The coupon will be a fixed rate and would be decided on the basis of the book building route. The coupon rate would be close to that of government bonds. It will be a prevailing yield, plus-minus a few basis points, he said.
The AAA-rated IFC has its internal system of assessing credit risks of projects, on the basis of which it fixes the spread to be charged from the developers. The bonds would be marketed to institutional investors; there will not be any quota for retail investors. The paper will be open for foreign institutional investors (FIIs).
On who would bear the exchange rate risks in case of FIIs, he said it has to be the latter. "If you invest in 18-20 years, there is no hedge in that sense. It is very difficult. I think foreign investors who believe in the India story, want to take a rupee risk, want to take a duration risk on the rupee, will be happy to park in their money."
IFC has all regulatory approvals with it for the bonds and currency swaps. Now, it will start meeting investors by organising roadshows in major cities of India.
"We are a new entity in the market. All investors don't know what IFC is. We need to talk to them. They have to go to their management to frame guidelines to take IFC risk," said Gaur.
Bond market
IFC raised a $1-billion offshore global bond programme linked to the rupee exchange rate last year. It has opted for onshore bond markets this time. "If you have strong domestic capital markets, you don't depend too much on foreign debt. This will reduce shocks to capital flows. You don't have to depend on foreign debt all the time," said Gaur.
As mentioned earlier, the aim is also to strengthen the long-term bond markets in India. The government's economic affairs secretary, Arvind Mayaram, said: "It will also create a new momentum in the development of the corporate bond market and long-term bond market. It will create a yield curve which can then be followed by others."
IFC's executive vice-president, Jin-Yong Cai, said vibrant capital markets provide critical access to finance for the private sector.
It has similarly done onshore bond issuance programmes in 14 countries, including in China, Russia and Brazil.
In 2013-14 (July-June), IFC invested $1.2 billion in 34 projects in India. Apart from support to infra projects, the aims were to promote financial inclusion and enhance access to better health care for poorer sections.
This year, it might invest about $1.2 billion, too, an IFC official said.
Such an issuance of bonds in India by IFC hasn't been done before. It is also aiming at developing a long-term debt market here.
Various segments of infrastructure projects would be funded if there were no environmental and social issues involved. The recent focus has been on renewable power projects, an IFC official said.
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The first tranche of the bonds will be issued in a few months, though no date has been fixed. "We are very close to the first tranche but we can't put any timing to that," Keshav Gaur, IFC head for Asia, Europe, West Asia and North Africa Treasury, told reporters here. He said the tenor would be driven by project needs but it will be long-term paper.
Type of instrument
"We are targeting only infrastructure projects, which need very long-term money. So, we will issue long-tenor bonds. It could be up to 30 years but you have to see the interest rate reality in this country," he said.
He said even if the project concerned needed 30-year year money, it might not want to lock in for 20 years at today's fixed rate. "It may say we need 30-year money but give me the rate of only, say, 10 years, and then we will roll over. So, it has to match the need of the project," he explained.
He said the size and the number of tranches will be decided on the basis of project needs. "We are not putting any restrictions and the pipeline is still cooking."
The coupon will be a fixed rate and would be decided on the basis of the book building route. The coupon rate would be close to that of government bonds. It will be a prevailing yield, plus-minus a few basis points, he said.
The AAA-rated IFC has its internal system of assessing credit risks of projects, on the basis of which it fixes the spread to be charged from the developers. The bonds would be marketed to institutional investors; there will not be any quota for retail investors. The paper will be open for foreign institutional investors (FIIs).
On who would bear the exchange rate risks in case of FIIs, he said it has to be the latter. "If you invest in 18-20 years, there is no hedge in that sense. It is very difficult. I think foreign investors who believe in the India story, want to take a rupee risk, want to take a duration risk on the rupee, will be happy to park in their money."
IFC has all regulatory approvals with it for the bonds and currency swaps. Now, it will start meeting investors by organising roadshows in major cities of India.
"We are a new entity in the market. All investors don't know what IFC is. We need to talk to them. They have to go to their management to frame guidelines to take IFC risk," said Gaur.
Bond market
IFC raised a $1-billion offshore global bond programme linked to the rupee exchange rate last year. It has opted for onshore bond markets this time. "If you have strong domestic capital markets, you don't depend too much on foreign debt. This will reduce shocks to capital flows. You don't have to depend on foreign debt all the time," said Gaur.
As mentioned earlier, the aim is also to strengthen the long-term bond markets in India. The government's economic affairs secretary, Arvind Mayaram, said: "It will also create a new momentum in the development of the corporate bond market and long-term bond market. It will create a yield curve which can then be followed by others."
IFC's executive vice-president, Jin-Yong Cai, said vibrant capital markets provide critical access to finance for the private sector.
It has similarly done onshore bond issuance programmes in 14 countries, including in China, Russia and Brazil.
In 2013-14 (July-June), IFC invested $1.2 billion in 34 projects in India. Apart from support to infra projects, the aims were to promote financial inclusion and enhance access to better health care for poorer sections.
This year, it might invest about $1.2 billion, too, an IFC official said.