International Finance Corporation (IFC), the private sector arm of the World Bank, today raised INR6 billion (€76 million; $98 million) through the issuance of its first onshore rupee bond.
The papers, dubbed “Maharaja bonds” and soon to be traded on India’s National Stock Exchange, were subscribed to by a range of international and domestic institutional investors. The proceeds have been earmarked to finance infrastructure projects in the country.
The transaction marks the first issuance of a rupee-denominated paper by an international institution in a decade, and is the first ever to price below Indian government bonds (IGB) of similar maturities.
The AAA-rated bonds offered a complex, innovative structure, which IFC says helped attract fresh capital to India’s underdeveloped capital markets. There were four different tranches with different maturities under the same issuance: a five-year bullet bond of $25 million, a 10-year bullet bond of $25 million, and two separately tradable redeemable principal parts (STRPPs) with maturities of between 13 and 20 years.
“The innovative structure of IFC’s Maharaja bonds enables us to efficiently connect savings from international and domestic investors to investments in infrastructure, while setting a AAA pricing benchmark in the domestic capital markets that will pave the way for other high-credit issuers,” said Jingdong Hua, IFC vice president and treasurer, in a statement.
The five- and ten-year bullet bonds priced about 50 basis points below IGBs, with respective fixed-rate coupons of 8.00 percent and 7.97 percent. The STRPPs priced in a range of 20 to 30 basis points above their relevant IGB benchmarks, with coupons of 8.88 percent (for maturities of 13 to 18 years) and 9.00 percent (for maturities of 19 to 20 years).
The news will provide a fillip to the Modi government, elected last May on a pledge to reduce India’s infrastructure bottlenecks but which has since faced difficulties in its efforts to open wider channels to finance projects. Earlier this month, the country’s central bank banned the country’s financial sector from purchasing bonds issued to pay for infrastructure works, putting a spanner in the administration’s ambition to raise up to $10 billion for infrastructure in the current financial year.
The bonds were issued as part of IFC’s plan to raise $2.5 billion through rupee-denominated bonds and swaps over the next five years. The institution invested close to $380 million in Indian infrastructure during its last fiscal year.