BRICS bank plans to tap Indian Rupee offshore market to raise capital

The New Development Bank (NDB) of the BRICS countries, which got its first 'AAA' rating this week, plans to tap the Indian Rupee offshore market as part of its efforts to raise capital, according to a top bank official.

The Shanghai-based NDB - floated by Brazil, Russia, India, China and South Africa (BRICS) - is headed by renowned Indian banker K V Kamath.

Japan Credit Rating Agency Ltd (JCR) on Tuesday assigned 'AAA' foreign currency long-term issuer rating with a stable outlook to NDB, the first such rating acquired by the Bank since it started functioning four years ago.

"It is the safest of investment ratings. If you are a AAA issuer, essentially it means that there's almost zero probability of you ever defaulting. That's what the rating agencies effectively telling investors out there," NBD Vice President and Chief Financial Officer Leslie Maasdorp told PTI in an interview.

Maasdorp said it is significant that the NDB got higher rating than the BRICS countries.

"India, for example, is BBB- on investment grade, South Africa has one rating at investment grade, China is A+, Brazil is sub-investment grade and Russia is BBB+. So, basically, what we have now, is that the NDB is rated significantly higher than weighted average of our members," he said.

"And it is a significant achievement because there is no other bank that we are aware of in the world that is only owned by emerging markets that has a rating as high as ours. All of the others that have such a high rating, they have either the United States or in Japan or the European Union as members. We have no AAA-rated countries as members," he said.

Maasdorp said the bank is looking into the Indian Rupee offshore market to raise resources after Masala bonds market slowed down.

Kamath, who is the President of the Bank, "knows the Indian market extremely well, we looked very closely at Masala bonds market", he said.

"We definitely intend to tap into the Indian Rupee offshore market. We looked at this already in 2017. But then, in 2018, there's been a significant drop in the market liquidity and demand for Masala bond," he said.

"For a number of reasons the Masala bond market kind of slowed down. We remain very keen to access offshore Rupee (market) as part of our capital raising, but we don't have timing yet. We are studying market conditions closely, because, obviously, investors are very sensitive to interest rate environment," he said.

"I anticipate that in 2020 we are likely to raise Indian Rupees, but it will be based on the demand for local currency. Many of our loans in India to date have been in USD, whereas in other countries there's been more demand for local currency," he said.

"So, we are likely to also look for hard currencies for 2020, but it's all based on what happens to the interest rate environment," he said.

Maasdorp said a total of 37 projects have been approved for all the five BRICS counties.

"India is number two in terms of approvals now -- I'd say about 29 per cent of our entire approved loans (totalling USD 10.2 billion), almost a third of that is in India," he said.

China stands first with 38 per cent of approvals.

According to the bank, the approved projects for India included Assam Bridge (USD 300 million), Mumbai Metro Rail (USD 260 million), Madhya Pradesh roads project (USD 350 million), Madhya Pradesh Bridges project (USD 175 million), Bihar rural roads project (USD 350 million), Rajasthan Water project (USD 345 million) and Madhya Pradesh water supply project (USD 470 million).

Asked whether there is any competition between the NDB and the China sponsored Asian Infrastructure Investment Bank (AIIB) which is also based in China, Maasdorp said multilateral banks don't compete with each other.

"In general, we do not compete with each other, we are co-financing in many instances," he said.

"We work very closely with AIIB because they are a sister institution, we are both headquartered in China. And the third reason why we don't really compete is that we provide a lot of local currency financing and we are unique in that regard," he said.

About the slowdown of the BRICS economies including China and India, he said, "it's obviously concerning that the global economy is going through this global slowdown, but in all our member countries there's a strong urbanization that is driving growth, for example in India."

"India requires bridges, roads, airports -- all these things to fuel the economic growth of the countrywe believe that a multilateral development bank should do what we call countercyclical investment, meaning when the cycle is down, when economies are slowing down, you need to invest in infrastructure to help kick start the economies," he added.