International Finance Corp., the World Bank’s investment arm, plans to sell a record $1 billion of rupee bonds offshore to fund its investments as India struggles to lure capital amid the slowest growth in a decade.
The bond sale aims to “attract greater foreign investment in a time of renewed economic uncertainty across the world,” the Washington-based IFC said in a statement yesterday. The so-called synthetic debt is settled in foreign currencies and allows investors to profit from rupee interest rates. The notes would share the World Bank’s top rating, according to Citigroup Inc., compared with India’s lowest investment-grade status.
“The announcement of the bonds issuance does not have direct implications towards altering the capital inflows arithmetic,” Gaurav Garg, a strategist at Citigroup in Singapore, wrote in a research report today. “However, the step in the right direction towards greater capital account convertibility should support investor confidence further.”
India’s rupee has rebounded 11 percent from a record low on Aug. 28, the best performance in Asia and almost halving the year’s drop, as central bank Governor Raghuram Rajan offered concessional swaps to boost the supply of dollars. Citigroup predicts the rupee’s outperformance will continue, and has a buy-call on the currency.
Foreign investors have cut holdings of rupee-denominated debt to $25.9 billion as of Oct. 8, the lowest since December 2011, official data show, as the U.S. prepares to pare stimulus. India’s economy expanded 5 percent in the fiscal year ended March, the smallest gain in a decade and the nation’s current-account deficit makes it reliant on overseas funding.
India represents the biggest country exposure in IFC’s investment portfolio, with a total amount of $4.5 billion as of June, said IFC, which focuses on the private sector. The IFC has sold bonds in 13 local currencies, including the Brazilian real, the Chinese yuan, and the Russian ruble. The lender sold 439 million reais ($199 million) of offshore bonds Oct. 7, data compiled by Bloomberg showed.
“This is a new initiative for the intermediation of international savings for development in India,” Arvind Mayaram, Secretary of Economic Affairs in India’s Ministry of Finance, said in the IFC statement. “It will also help deepen the capital markets in India and establish an Indian rupee benchmark in the global markets.”