Kerala Infrastructure Investment Fund Board (KIIFB), the primary government agency for financing large and critical infrastructure projects in Kerala, has successfully established a global Medium Term Note (MTN) programme to raise Rs 5,000 crore from the international markets.

The MTN programme has been filed with the London Stock Exchange and the Singapore Stock Exchange. It will enable KIIFB, a special purpose vehicle, to access the international bond market through the issuance of Masala Bonds of up to Rs 5,000 crore in one or more tranches.

INTERNATIONAL RATING

KIIFB has also undertaken a detailed rating exercise through two international credit rating agencies – Standard and Poor’s (S&P) and Fitch Ratings (Fitch).

The ratings for KIIFB have been regularised with the rating agencies’ assessment of the credit profile of the state of Kerala. Both S&P and Fitch have assigned KIIFB a long-term foreign currency rating of BB with 'stable' outlook. The MTN Programme has also been rated BB with 'stable' outlook by both rating agencies.

This is not only a significant milestone for Kerala and KIIFB, but also for India and the international debt capital markets, an official spokesman said. As for Kerala, its role as guarantor to debt issuances of KIIFB makes it the first state to secure a public international credit rating.

KIIFB enjoys the unique distinction of being the first state government public sector enterprise to establish an MTN Programme for raising offshore bonds.

'SIGNIFICANT DEVELOPMENT'

Finance Minister Thomas Isaac said the government is extremely proud and pleased that Kerala has been assigned the highest public international credit rating for any state in India.

"This is significant. The Masala Bonds would be a pioneering initiative and other states could emulate this in order to attract global debt capital investors to participate in meaningful and focused infrastructure development in their respective states,” he said.

KIIFB is uniquely positioned to access international bond markets owing to the strong support it enjoys from the Kerala government and its ring-fenced stream of cash flows.

The comfortable liquidity position and the high governance standards that are legislated under the Kerala Infrastructure Investment Fund Act would go to consolidate its position further.

MIDDLE-EAST, NEXT

Axis Bank and Standard Chartered Bank are dealers for the MTN Programme, while DLA Piper and Cyril Amarchand Mangaldas are the international legal counsel and domestic legal counsel.

KM Abraham, CEO, KIIFB, said of the establishment of the MTN Programme and the international rating would provide KIIFB with an additional stream of capital to finance critical infrastructure.

Sanjeev Kaushik, IAS, Deputy Managing Director, KIIFB, and Principal Secretary (Resources), Kerala, said KIIFB will also try to tap the West Asia market.

This is because Kerala enjoys a strong connection with that geography, apart from international finance centres like London, Singapore and Hong Kong.

Kaushik told BusinessLine that the proposal is to raise up to Rs 1,500 crore in the first tranche. "These are basically five-year notes and we have a one-year window to go through with the programme."

PEGGED TO RUPEE

The Masala Bonds are pegged directly to the Indian currency. So, investors will directly take the currency risk or exchange rate risks. If the value of the Indian currency falls, the foreign investor will have to bear the losses, not the issuer which is an Indian entity or a corporate.

Given this, KIIFB will 'go opportunistically about it,' Kaushik said. After all, the rupee continues to be weak concurrently even as the overall global environment has turned volatile.

"We will wait for the rupee to stabilise within a range and strike the iron when it is suitably hot," he said, adding that KIIFB would soon finalise a roadshow to meet with prospective investors.

According to Kaushik, KIIFB has already been approached by several state governments after they heard about the successfully established the MTN programme.

Kerala would have the first mover advantage, which is saying a lot, since it would take at least six months to prepare the basic document for preparing an MTN programme.

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