The Ministry of Finance is in discussions with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) to allow British Columbia to issue offshore rupee-denominated bonds. If the proposal gets approved, British Columbia will be the first sovereign government to issue around $150 million-worth rupee-denominated bonds, popularly known as masala bonds.
“Companies have been allowed to issue rupee-denominated bonds. This is the first time we have got a proposal from a government. A special dispensation will be made for British Columbia in line with the precedent set for allowing IFC (International Finance Corporation) to issue rupee bonds earlier,” a government official said.
The RBI had in September allowed companies, Real Estate Investment Trusts and Infrastructure Investment Trusts to issue rupee-denominated bonds overseas as an additional source of funding without currency risk. Firms are allowed to raise up to $750 million per year from rupee-denominated bonds under the automatic route, beyond which they require approval from the RBI.
British Columbia in its proposal submitted to the finance ministry has detailed its plan to raise $150-million from offshore rupee bonds and reinvest the funds raised offshore in the Indian capital markets as a foreign portfolio investor, the official said.
“Their proposal looks good, they (British Columbia) have a good sovereign credit rating from most rating agencies. Also, British Columbia plans to invest the money raised through offshore rupee bonds into capital markets in India,” the official said, adding that the rupee-denominated bonds are likely to be listed in London or Singapore.
Moody’s Investors Services has a AAA credit rating for British Columbia. Earlier this month, the Province of British Columbia had received approval from the Peoples’ Bank of China to establish a Panda bond programme in China’s onshore Renminbi market. The province had also issued Dim Sum bonds earlier.
Last week, British Columbia’s Minister of Finance Michael De Jong had met Minister of State for Finance, Jayant Sinha, to discuss plans to raise funds via masala bonds. Jong had told reporters last week about the Canadian province’s plan to raise funds via masala bonds in January-March next year.
“We (British Columbia) are AAA- rated jurisdiction. Our budgets are balanced…no foreign government has issued masala bonds. We will be the first foreign government to issue masala bonds worth $150 million,” a report by PTI had quoted Jong as
saying. In 2013, IFC, the arm of World Bank, had issued its first overseas rupee bond worth around $160 million as part of its $1 billion offshore rupee bond programme. In November 2014, IFC issued a ten-year, 10 billion Indian rupee bond (equivalent to 163 million). The IFC masala bonds marked the first rupee bonds listed on the London Stock Exchange and were issued under the institution’s $2 billion offshore rupee programme.
During his recent visit to the UK, Prime Minister Narendra Modi had spoken about the masala bonds, announcing the plan of Indian Railways to borrow through these bonds. HDFC, NTPC, IIFCL and Power Finance Corporation had also announced their intention to raise funds through such bonds.