IFC in talks with India to sell another $2 bn in offshore rupee bonds

The International Finance Corporation (IFC), the World Bank's private sector arm, is in talks with Indian regulators on selling another $2 billion in rupee-denominated bonds overseas, signalling strong foreign interest in gaining exposure to the country.

The IFC launched a maiden, $1 billion, offshore, rupee-linked bond programme last year to raise money for private infrastructure projects in India. It was completed in April and attracted strong demand. The IFC programme has allowed foreign investors to gain further access to India, while the country has benefited from a small step towards the internationalisation of the rupee and gets help in raising funds for infrastructure.

The IFC also said on Tuesday it had raised around $100 million through an issue of rupee-denominated bonds in India, christening them "Maharaja bonds". The debt, which targets both foreign and domestic investors, is part of the organisation's $2.5 billion onshore debt programme.

Serge Devieux, regional director of the IFC for South Asia, told reporters the organisation had been surprised at the demand for its offshore issuance, giving it confidence in launching the onshore debt programme.

"The response was immense. It was many times oversubscribed," Devieux said about the offshore sale. "There are quite a lot of investors out there, whether local or international, who want to make an investment."

Keshav Gaur, the IFC's head of treasury client solutions for Asia, Europe, Middle East and North Africa, said the organisation was "still talking to the regulators" about expanding the offshore bond sales by $2 billion.

The rupee has rallied 13 per cent since hitting a record low of 68.85 per dollar in August last year, helped by measures to narrow the current account deficit and the Reserve Bank of India's commitment to curb inflation.

Investors have also welcomed the election in May of Prime Minister Narendra Modi , who has pledged to revive the economy and the investment climate.

The IFC's $1 billion offshore bond was followed by the Asian Development Bank's first-ever sale of rupee-linked bonds abroad last month with a 3 billion rupee issue.

Foreign investors' exposure to rupee debt could get a further push should India join Euroclear, the world's largest securities settlement system, which would let foreign investors settle domestic government bonds on the system.

The IFC's domestic sale on Tuesday involved a 6 billion rupee ($98.5 million) issue with four tranches with maturities ranging from five to 20 years.

Sales by the IFC of onshore bonds could help with raising funds in the capital markets for India to pursue infrastructure projects.

In mid-July the government sought to encourage banks to issue bonds to fund infrastructure by exempting these bonds from reserve requirements.