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The Reserve Bank of India’s proposal to allow Indian companies to issue rupee-denominated bonds overseas will open up an important funding avenue, say industry experts.
Permitting companies to issue such bonds abroad will address both pricing and currency risks and also opens a window for rupee-denominated instruments to trade abroad, deepening the debt market globally.
The bonds will be subscribed to by foreign investors and essentially shifts the exchange rate risk from the bond seller to the buyer.
This move by the RBI, announced on Tuesday, follows significant demand for rupee-denominated bonds issued by the International Finance Corporation (IFC) and the Asian Development Bank (ADB).
The fervent response to the offshore bonds issued by the IFC and the ADB has encouraged the RBI to push companies into tapping the rupee bond market abroad. In November last year, IFC sold ₹1,000 crore worth of offshore 10-year Indian currency bonds at nearly 2 per cent below the benchmark 10-year government bond. In August, ADB raised ₹300 crore from an offshore rupee-linked bond issue, to be settled in dollars.
Thus, many foreign investors have shown interest in high-yielding Indian debt, analysts said.
Rajeev Talwar, Executive Director of real estate major DLF, said: “I’m sure companies will want to look at it. It is easier to raise debt and the risks are mitigated and there will be a bet on our currency and the response should be to get it stronger.
“So, India has nothing to lose and since there is no foreign exchange involved, there is no hedging. We have not planned anything right now. For anyone seeking foreign debt, this would be a much better alternative if they are willing to…”
Chanda Kochhar, CEO and MD, ICICI Bank, said, “It is a positive move. Investors from outside who carry the rupee in India also carry a risk. So, they would prefer such rupee-denominated bonds…There is a demand for G-Secs and there are people willing to lend in rupees as well.”
According to Moses Harding, Group CEO and Chief Economist – Liability and Treasury, Srei Infrastructure Finance, “For conservative issuers who do not have un-hedged positions like us, it is a very good option. Those who do not want to take the exchange rate risk, will go for the rupee option. We may be looking at this option of raising funds…From the RBI’s point of view, allowing rupee bonds will not leave them with the concern of un-hedged foreign exchange exposure by corporates.”
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