World Bank Issues First Offshore Rupee-Denominated Bond

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Nov. 28 – International investors will now be able to buy offshore rupee-denominated bonds thanks to a program sponsored by the World Bank aimed at strengthening India’s financial markets and attracting greater overseas investment.

The program, run by the World Bank’s International Finance Corporation (IFC), will offer a series of rupee-linked bonds, worth a total of US$1 billion, to international investors. The first issue, valued at US$160 million, was released this month to overwhelming demand, according to a press release circulated by the IFC last week.

As a member of the Word Bank, the IFC is tasked with developing innovative strategies designed to boost economic opportunity around the world. The current bond program, with this goal in mind, was designed to “strengthen India’s capital markets and attract greater foreign investment in a time of renewed economic uncertainty across the world,” according to the release.

“The IFC Global Rupee Bond will help attract other foreign investors to the offshore rupee market and provide an alternative source of rupee funding for investment in the country,” said IFC’s Vice President, Jingdong Hua.

Under the bond’s terms, an annual interest rate of 7.75 percent will be offered over a three-year benchmark period. The bonds will be purchased and settled using the US dollar, with all interest payments based on the rupee’s exchange value against the USD. The IFC will use the bond’s proceeds to offer financial assistance to private sector enterprises in India.

Investor excitement for the IFC’s first rupee-linked bond release was greater than expected, suggesting the program will continue to experience strong demand as more bonds are issued under the World Bank’s US$1 billion program.

“The response from global investors has been very positive. There was lot of interest in the rupee bond. We received bids for twice the benchmark size of [US$]160 million,” remarked Monish Mahurkar, a director with the IFC.

The Indian government has also welcomed the new offshore rupee-linked bond and lauded the IFC’s commitment to the Indian economy. “[The bond] will strengthen India’s capital markets, bring back foreign investors and put international savings to use for India’s development,” said India’s Secretary of Economic Affairs, Dr. Arvind Mayaram.

By allowing investors to purchase the rupee-linked bonds using the US dollar, the IFC hopes to dampen the effects of rapid capital movement between currencies. This feature will be increasingly important as the United States Federal Reserve adjusts its monetary policy in the coming years. Such changes can lead to the rapid exodus of foreign investors from international currencies, causing large fluctuations in a currency’s value, as was seen by the rupee earlier this year.

The IFC is confident their new program will pave the way for future issuers to increase liquidity in the offshore market for rupee-linked bonds and help provide hedging mechanisms for international investors.

“It definitely has the potential for creating a vibrant, liquid market across the credit curve,” remarked Mr. Mahurkar.

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