Indian Likely To Issue $5 Bn Bonds in FY21 with No FDI Limits

As per two finance ministry sources with knowledge about the matter, India may issue at least USD 5 billion worth of bonds with no restrictions on foreign investment in the financial year of 2021. This step will be taken with the aim of listing the bonds on global indices and attract more foreign funds.

One source said that the government of India is expected to issue bonds of minimum USD 400 million each in several tranches.

"We have spoken to major index operators and we will start pushing these bonds in tranches very early in the first half of the next fiscal year itself," the first official said.

As reported by livemint, the bonds will be rupee-dominated, said officials who asked not be named.

In September, it was reported that the government was contemplating on a special window free of any foreign investment cap for overseas passive investors.

An inclusion in global indices is significant as it would open the country’s bond market to more investors and possibly also decrease the government’s borrowing costs.

Ananth Narayan, an associate producer of finance at S.P. Jain Institute of Management and Research said that the investment could be crucial in the long run.

"if it is only a few bonds, a full- fledged index inclusion will not happen. We will get a very small, negligible kind of weightage on the index, but it is a good way to start”, Narayan added.

As in the norm, to include a sovereign bond global indices, the issuing country is required to remove all foreign investment caps. However, India has negotiated with some operators to open a new category of bonds that would have no caps instead of removing the 6 per cent cap for the entire market, the first official said.

During her budget speech for the year 2020-21, finance Minister Nirmala Sitharaman announced plans to fully open up a certain category of bonds for oversea investors. However, she did not include details like quantity, timing, or tenure in her speech.

This step will decrease the amount of securities that would be required to be bought just by domestic participants by about 4.5 per cent at the outset. As of now, the country’s total planned borrowing for 2020/21 stands at $109.57 billion.’

The Modi government plans to spend over 100 trillion rupees to build new roads, hospitals, airports and rural infrastructure, and for this, it is seeking out fresh investors.

Both the officials said that the government is in talks with market players to gauge the appetite for such bonds and may also increase the cap for foreign investment for the entire market if warranted in the future, reported livemint.

Currently, India is working on the tenures of the bonds and could come up with 10-year benchmark bonds in the special category as well, said the first official.