World Bank and others issue offshore rupee bonds worth $1.4 billion as demand soars | World News – Business standard
Lenders at the World Bank and other global institutions have issued $1.4 billion worth of foreign rupee-denominated bonds so far this year to meet strong demand fueled by India’s inclusion in the widely held index of the emerging markets from JP Morgan, two banking sources said.
Bond issuance since January amounts to almost half of the $3.3 billion issued in all of 2023, said the sources, who actively trade these supranational bonds and based their figures on data from several financial institutions.
Most of last year’s issuance took place in the fourth quarter, the sources said, as foreign investors piled into rupee debt after JP Morgan said India will be part of the Emerging Market Bond Index from June 2024 ( EMBI).
These offshore bonds, with maturities ranging from 4 to 10 years, are denominated in Indian rupees but settled in US dollars, the sources said. They declined to be named because they were not authorized to speak to the media.
Bond yields are generally lower than Indian government bonds. They allow issuers to raise US funds at lower rates while allowing foreign investors to access rupee debt without having to get a special license to operate onshore or pay local taxes, investment bankers added.
“The fact that you may have some investors who don’t want to go through the registration process. They can just continue using the supra market, and to be honest, the supra market is growing quite quickly,” says the Singapore-based company. Kenneth Akintewe, head of Asian sovereign debt at abrdn, said, adding that global investors are “generally overweight” on Indian risk.
Mitul Kotecha, head of currency and emerging markets macro strategy for Asia at Barclays, said foreign rupee bond issuance had increased after JP Morgan’s inclusion, adding that they were a “simple channel” for investors wanting debt own without having to incur debts. setting up local arrangements.
The World Bank’s credit arm, the International Bank for Reconstruction and Development (IBRD), has issued several bonds to date, including a six-year bond issued this month at a yield of 6.89%, boosting domestic government bond yields by fell 7.06%.
Other supranational institutions, all AAA-rated, including the European Bank for Reconstruction and Development, the Inter-American Development Bank and the Asian Infrastructure Investment Bank, have also issued rupee bonds. JP Morgan, Goldman Sachs, Standard Chartered Bank and HSBC were among the arrangers, bankers said.
Issuers typically convert bond proceeds into U.S. dollars
dollars to finance global projects. The high demand for rupee debt means that the dollar funds are 15 to 25 basis points cheaper than prevailing US interest rates.
“The appeal for issuers is that they shave a few basis points off the dollar cost and it gives them access to a broader pool of investors,” said an emerging markets executive at the British-based bank, who asked not to be identified if he was not authorized to speak to the media.
Traditional long-only asset managers pick up about three-quarters of the total amounts issued, with the rest absorbed by short-term investors looking to capture the passive investment inflows that will drive index inclusion, the banker added.
First print: February 22, 2024 | 1:14 am IST