India Said to Mull Smaller Tranches as it Weighs Sovereign Bond

India is assessing whether to issue dollar sovereign bonds to foreign investors in smaller tranches to ensure the sales succeed, according to two government officials with direct knowledge of the matter.

The size of each tranche would be less than $10 billion, as there may not be enough demand for larger sales, one of the officials said. Both said no decision has been taken in the early-stage talks on whether to go ahead with such a foreign-currency sovereign note. They requested anonymity as the deliberations are private.

India’s current-account deficit widened to $87.8 billion last fiscal year, adding pressure to woo inflows to fund the gap after foreign-direct investment fell. The rupee has weakened about 7 percent versus the dollar in 2013 and fell to an all-time low July 8, hurt by the trade imbalance and as the possibility of reduced U.S. monetary stimulus saps demand for emerging-market assets.

A private placement of the debt with larger bond funds or sovereign-wealth funds is being considered, one of the government officials said.

Another official at a state-owned Indian bank confirmed that smaller tranche sizes and the private placement route are being discussed for the mooted sovereign issue.

Finance Ministry spokesman D.S. Malik declined to comment on the discussions about foreign-currency sovereign bonds.

Any issue of foreign-currency sovereign Indian debt to overseas investors would be the nation’s first. The country has previously raised dollar deposits from Indians residing abroad.

The rupee strengthened 0.6 percent to 59.35 per dollar at the close in Mumbai yesterday. The S&P BSE Sensex index rose 0.1 percent. The yield on the 8.15 percent note due June 2022 declined to 8.07 percent from 8.09 percent on July 18.

The Reserve Bank of India raised two of its interest rates on July 15 and said it will cap its daily fund injections via repo contracts, seeking to support the currency.

It left the repurchase rate, the monetary-policy benchmark, unchanged in June at 7.25 percent. Emerging markets from Brazil to Indonesia have raised benchmark borrowing costs in 2013 to support their currencies.

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