Government mulls issue of sovereign bonds to prop up rupee
17 Jul 2013
The government is weighing plans to enter the global market with an issue of rupee bonds to shore up the supply of dollars to stem the fall of the rupee.
Quoting unnamed sources, CNBC-TV said investment bankers have recommended opening up of the global rupee bond market as an alternative to raising dollars through external commercial borrowings (ECBs).
CNBC said investment bankers, including JPMorgan, Goldman Sachs, SBI Capital and SBISG, have jointly submitted a working paper on global rupee bonds to the finance ministry.
The investment bankers are reported to have recommended issue of bonds of 5 to 10 years maturity, with $500-1,000 million as the first tranche.
The bonds, to be denominated in Indian rupees, are to be settled in US dollars, as per the recommendations.
Investment bankers have suggested bond issue by a sovereign or a quasi-sovereign issuer, such as India Infrastructure Finance Company (IIFCL) and IIFCL.
With no rupee-denominated sovereign bonds in offshore markets at present, investment bankers expect the new bonds to acquire some rarity value. These bonds may also be of interest to some central banks globally, they suggest.
And, with India getting $20-25 billion annually by way of portfolio investments, most of which flows out on market volatility, it is doubtful if the rupee bonds would garner enough dollars to quell rupee volatility as well.
In fact, with US treasury yields at a two-year high and the rupee on a steady decline, it will be a Herculian task to raise debt funds in overseas markets.
The government is looking at all possible options now to curb the volatility of rupee.
While almost all emerging market currencies have fallen, the rupee has lost the most, losing nearly 100 per cent of its value over the past decade or so. The rupee is the second-worst performing currency in emerging markets.
The government, however, has not taken a final decision on whether or not to go ahead with the rupee bonds as it would be borrowing afresh to repay debt.
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