IFR 03.08.2019

India loosens offshore funding

„ Emerging Markets Companies allowed to use external borrowings to refinance rupee debt

BY KRISHNA MERCHANT,
DANIEL STANTON

)NDIANûCOMPANIESûAREûEXPECTEDû
to raise billions of US dollars in
the international bond market
after the central bank allowed
THEMûTOûRElNANCEûRUPEEûDEBTû
offshore to alleviate tight credit
conditions at home.
4HEû2ESERVEû"ANKûOFû)NDIAûONû
*ULYûûSAIDûTHATû)NDIANûCORPORATESû
ANDûNON
BANKINGûlNANCIALû
companies would be able to use
the proceeds from overseas
borrowing to repay rupee debt.
0REVIOUSLY û)NDIANûCOMPANIESû
could use offshore funding only
for capital expenditure.
4HEû2")ûHASûALSOûALLOWEDû
eligible corporates to raise funds
through external commercial
borrowings to repay rupee loans
taken for capital expenditure in
the manufacturing and
infrastructure sectors, and loans

CLASSIlEDûASûNON

PERFORMINGûASSETSû

under any one-time settlement

arrangement with lenders.

The changes could result in

)NDIANûCOMPANIESûSELLINGûANû

extra US$5bn–$10bn of bonds

PERûYEARûTOûRElNANCEûRUPEEûDEBTû

or acquire distressed assets, one

$#-ûBANKERûESTIMATED

2ATINGûAGENCIESûVIEWûTHEû

changes as credit positive. “The

rule change opens an alternate

long-term funding channel

amid tight domestic bank

lNANCINGûANDûSHOULDûPROVIDEû

GREATERûFUNDINGûmEXIBILITYûACROSSû

ALLûCORPORATEûSECTORSvûSAIDû30û

in a note on August 1.

A minimum seven-year

maturity is necessary for

RElNANCINGûCAPITAL

EXPENDITUREû

loans, and 10 years for

RElNANCINGûWORKING

CAPITALû

loans. The cap on interest costs

remains unchanged at 450bp

over the benchmark rate.

Previously, some issuers had

SOLDûBONDSûUNDERû4RACKû))ûOFû

)NDIASû%#"ûFRAMEWORKûWHICHû

allowed them to use offshore

bonds with tenors of at least 10

YEARSûTOûRElNANCEûRUPEEûDEBTû

$ELHIû)NTERNATIONALû!IRPORTûANDû

Adani Transmission both issued

US dollar 10-year bonds in 2016

UNDERûTHATûRULEûTOûRElNANCEû

rupee borrowings.

(OWEVERûWHENûTHEû2")û

STREAMLINEDû%#"ûRULESûINû*ANUARYû

this year, it had the side effect of

blocking off that route. Now it is

open again and the minimum

tenor has been reduced.

QUALITY ISSUERS EXPECTED

4HEû2")SûCONDITIONSûMEANûTHATû

COMPANIESûANDûNON

BANKûlNANCIALû

companies with good ratings may

BEûTHEûMAINûBENElCIARIES

“A lot of good quality

companies and stronger rated

."&#SûWANTûTOûRAISEûFUNDSûFORû

RElNANCINGûANDûNOWûTHEYûWILLû

BEûABLEûTOûRAISEû%#"SûFORûSEVENû

and 10 years,” said Avinash

4HAKURûHEADûOFû!SIA

0ACIlCûDEBTû

origination at Barclays.

3EVERALû)NDIANûRENEWABLEû

energy companies, such

asGREENKO ENERGY HOLDINGS, RENEW

POWER and AZURE POWER GLOBAL,

have issued US dollar bonds with

tenors as long as seven years, but

have had to use complicated

structures. They have tended to

issue US dollar bonds through an

offshore entity and use the

proceeds to subscribe to rupee

bonds from another entity.

h4HEûNEWû2")ûRULESûCANû

facilitate direct issuance for

such entities/restricted groups,

simplifying the structure and

PROCESSvûSAIDû2ACHNAû*AINûAû

director at Fitch.

4HEû$#-ûISSUERûADDEDûh)SSUERSû

will still use a mixture of structures.

Given that the cap on spreads is

absolute, from time to time other

structures will make sense.”„

World Bank’s Bondi makes ripples

„ Bonds First public blockchain bond to be tapped one year on from initial sale

BY JOHN WEAVERS

The WORLD BANK is seeking to
broaden the investor base for its
inaugural Kangaroo blockchain
bonds issued in August 2018.
The World Bank, rated Aaa/
!!!û-OODYS30 ûHASû
mandated CBA, RBC Capital Markets
and TD Securities to tap the
A$110m (US$75m) of 2.2% August
28 2020 “Bondi bonds” following
update calls on August 5 and 6.
The reopening will be offered
to investors in Australia and
Singapore, in contrast to the
original placement, which was
offered only in Australia. The
bonds were bought by
#OMMONWEALTHû"ANKûOFû
Australia, First State Super,
.37û4REASURYû#ORPORATION û
Northern Trust, QBE, South
Australian Government
Financing Authority and
4REASURYû#ORPORATIONûOFû
Victoria.

)NûAûLONG

AWAITEDûBREAKTHROUGHû

THEû7ORLDû"ANKûANDû#"!û

announced in May they had

enabled secondary trading recorded

on blockchain for the bonds.

The Bondi Kangaroo issue was

THEûlRSTûANDûTHUSûFARûONLYû

public offering of blockchain

bonds, which can be managed

and traded with activity

recorded on a distributed ledger.

The trading functionality was

DEVELOPEDûBYû#"!ûINûCONJUNCTIONû

with the World Bank and

market-maker TD Securities.

The Bondi bond does not fully

embrace blockchain technology,

however, as payments are still be

made via the existing Swift

system to avoid the 10%

Australian goods and services tax

ONûlAT

CURRENCY

LINKEDûTOKENS

“The settlement was done at

T+3 days – which is shorter than

normal – but it could have been

faster with the use of digital

currency payments,” said Paul

Snaith, the World Bank’s treasury

head of capital markets

operations, at the time of the

initial sale.

SLOW BURNER

Blockchain advocates emphasise

the technology’s potential to

deliver substantial savings as

intermediary activities, including

clearing and the use of depository

institutions, are eventually

SIMPLIlEDûORûREMOVED

The bonds are seen providing

back-end rather than front-end

EFlCIENCIESûWITHûENHANCEDû

transparency cited as a key

advantage, because the shared

ledger enables issuers to see all

current holders of the bonds

and transactions.

“Since issuing Bondi in

August last year, the positive

feedback and interest from the

TECHNOLOGYûANDûlNANCIALûSECTORû

community globally has been

extraordinary,” said Sophie

Gilder, head of experimentation

ANDûCOMMERCIALISATIONûATû#"!û

)NNOVATIONû,ABSûINû-AY

”There is a growing

recognition that blockchain

technology can deliver a superior

digital market for raising capital

and then managing and trading

securities, so we are working

with our strategic partners to

realise that vision.”

/NEûYEARûONûFROMûTHEû

inaugural sale, there has yet to

be any further public

blockchain bond supply, either

in Australia or globally.

An existing investor does not

expect the blockchain model to

take off in Australia until the

GST question is resolved.

“At the moment, investors

suffer operational risk because

the bond is registered through

blockchain but transfers are

made outside. Until we have

end-to-end operational

EFlCIENCYûTHENû)ûDOûNOTû

anticipate a rush of replica

issues here,” he said. (^) „
Top news