Don’t miss the latest developments in business and finance.

International Finance Corp bond issue to fund projects

Aims to raise Rs 15,000 cr over 5 years from rupee-denominated bonds and currency swaps for projects and to develop the market

Image
BS Reporter New Delhi
Last Updated : Aug 20 2014 | 11:51 PM IST
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.

Also Read

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.

More From This Section

First Published: Aug 20 2014 | 11:50 PM IST

Next Story