IFC to raise $2.5 bn through rupee bonds: How it will boost Indian infra sector

IFC will use a combination of rupee-denominated bonds and swaps to raise local-currency financing of up to Rs 15,000 crore over the next five years

FP Staff August 21, 2014 07:28:13 IST
IFC to raise $2.5 bn through rupee bonds: How it will boost Indian infra sector

In what could be a turnaround for the Indian economy, the International Finance Corporation, the private sector arm of the World Bank, has announced it will raise $2.5 billion (about Rs 15,000 crore) from rupee-denominated bonds to support infrastructure development in India.

IFC will use a combination of rupee-denominated bonds and swaps to raise local-currency financing of up to Rs 15,000 crore over the next five years, IFC Executive Vice President and CEO Jin-Yong Cai said.

Speaking at the launch of the programme, Economic Affairs Secretary Arvind Mayaram said: "It will also create a new momentum in the development of corporate bond market and long term bond market. It will create a yield curve which can then be followed by others."

He said the onshore bond programme marks another important milestone in the engagement between India and the International Finance Corporation.

What will be the funds used for?

According to reports, the proceeds will be used to strengthencapital marketsand support infrastructure development in India, signaling a turnaround for the Indian economy.

According to this Economic Times report, this will also be the first onshore offer of such magnitude by a blue chip entity and will help deepen and internationalise India's corporate bond market. This is exactly what the successive governments have aspired to do, but failed to achieve.

Money raised will likely be used to fund private energy and infrastructure projects. Cai said that bonds offered under IFC's rupee financing programme offer a safe investment alternative for domestic pension funds and other investors, while mobilising capital to address India's infrastructure needs.

Deep, liquid domestic capital markets ensure access to long-term, local-currency finance for the private sector-the key engine of job creation in emerging markets, Cai said, adding that they mobilise long-term funding for priority sectors such as infrastructure.

What about coupon rates?

The instrument would carry a fixed coupon rate through book building process and will be similar to government bonds.

The first tranche would be issued in the next few month, while subsequent tranches would be driven by project needs. The bonds could be subscribed by both foreign and domestic institutional investors only.

Previous investmentsby IFC in India

In 2013-14, IFC invested $1.2 billion in 34 projects in India to achieve strategic priorities of providing counter-cyclical support to infrastructure, promoting financial inclusion and enhancing access to quality and affordable healthcare to the under-served.

Last year, IFC issued a $1 billion offshore global bond programme linked to the rupee exchange rate. Under the programme, IFC offered six separate issuances between November 2013 and April 2014; four with maturities of three years, one of five years, and the final tranche of seven years.

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