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Business News/ Market / Stock-market-news/  IFC concludes first tranche of rupee bond programme
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IFC concludes first tranche of rupee bond programme

$100 mn sale the first instalment of $2.5 bn onshore programme spread over five years to raise infra finance

As part of the issue, IFC sold five-year bonds and 10-year bonds at a coupon rate of 8% and 7.97%, respectively.Premium
As part of the issue, IFC sold five-year bonds and 10-year bonds at a coupon rate of 8% and 7.97%, respectively.

Mumbai: International Finance Corp. (IFC), an arm of the World Bank, on Tuesday sold bonds to domestic and international investors to raise $100 million or nearly 690 crore, which would help it finance infrastructure projects in the country.

This is the first instalment of IFC’s $2.5 billion onshore bond programme spread over the next five years, to raise infrastructure finance for India. The sale of these securities—called Maharaja bonds—is expected to deepen India’s corporate bond market.

The Maharaja bonds will be listed on the National Stock Exchange (NSE) but not available to retail customers, IFC officials said in a conference to discuss the bond issue.

According to the 12th Five Year Plan, India needs over 1 trillion investment in infrastructure by 2017, most of which is expected to come from the private sector.

“The IFC Maharaja bonds are issued under a $2.5 billion programme, to support India’s domestic capital markets. The issuance follows IFC’s successful completion earlier this year of a global rupee bond programme, which raised $1 billion from investors globally," IFC said in a press release before the conference.

“All proceeds of bonds issued under this structure will be used for infrastructure investments in India," the release added.

IFC officials said the agency was also in discussions with the Indian government for a $2 billion extension of its recent $1 billion offshore rupee bond programme.

Some projects have already been identified for these investments. As and when the project pipeline grows, IFC will hit the bond market to raise funds of up to $2.5 billion under this programme, said Serge Devieux, regional director of IFC in South Asia at the conference.

In fiscal year 2013-14, IFC invested $1.2 billion in India, the release added. India is IFC’s largest country investment, with $5 billion in various projects and companies engaged in the infrastructure space.

As part of the private placement, IFC sold five-year bonds of $25 million and 10-year bonds of $25 million at a coupon rate of 8% and 7.97%, respectively. The five-year bond was sold at 49.7 basis points below the five-year Indian government bond, while the 10-year bond was sold at 46.6 basis points below the comparable 10-year government bond. A basis point is one-hundredth of a percentage point. The five-year bond was oversubscribed two times and the 10-year bond was oversubscribed 1.3 times.

There are also two separately tradeable redeemable principal parts (STRPPs) with maturities ranging from 13 to 20 years. In an STRPP, the coupon and the principal can be detached and traded separately.

IFC can increase the size of the issuance according to its funding needs under the STRPP structure.

“This is the first onshore rupee bond priced below Indian government bonds. It also incorporates certain tranches which provide IFC the flexibility to draw down over a period of time at a fixed spread, which is a feature not seen before in the domestic bond markets," said Chetan Joshi, head of debt capital markets at HSBC India, adding that the issue from IFC will help in the further development of the corporate bond market in India.

In fact, IFC bonds worldwide are priced below comparable maturity government yields because its bonds are AAA-rated whereas sovereign ratings are usually lower.

These bonds, in time, will attract a lot of other AAA-rated issuers and investors, said Devieux.

“FIIs (foreign institutional investors) value AAA rating and any AAA-rated papers will come at these levels. We are creating a benchmark on this segment," he said.

However, according to the treasury head of a foreign bank, the IFC bond sale alone will not create much impact in the corporate bond market.

“It is good that IFC has issued the bonds in India, but $2.5 billion over five years is not large enough to deepen the corporate bond market. Besides, 600 crore is also nothing much to talk about for now," the treasurer said, requesting anonymity.

Hongkong and Shanghai Banking Corp. Ltd (HSBC), ICICI Securities Primary Dealership Ltd and SBI Capital Markets Ltd are the book-runners for the issue.

IFC is not looking to extend the onshore bond programmes for retail investors as the ticket size won’t be desirable for funding infrastructure programmes. The 5- and 10-year bonds primarily target FIIs, while the longer-tenure bonds target domestic investors such as insurance companies, and provident and pension funds, said Keshav Gaur, global head, treasury client solutions, IFC.

Asset managers and “high quality" investors were among the foreign investors, he said.

This is the first time in a decade that a foreign investor has issued bonds in the domestic market. The Asian Development Bank issued 10-year bonds a decade ago.

Chitra Ramkrishna, chief executive officer of NSE, said the bonds will help create an ecosystem for more such bond sales in the country, which will deepen the Indian corporate bond market.

IFC’s investment in India is on a fully hedged basis.

“Our assets and liabilities both are in rupee terms. Our projects are in India. Hence, we are fully hedged," said Gaur.

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Published: 23 Sep 2014, 11:46 AM IST
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