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All bonds lead to London

The bourse there has become the preferred location for Indian entities, government and private, to raise new forms of debt finance

N Sundaresha Subramanian  |  New Delhi 

All bonds lead to London

Prime Minister Narendra Modi's invocation of James Bond at Wembley seems to have given a swagger to the Indian bond issuers planning to tap the London market.

Attracted by its strategic location and better understanding for innovative instruments, several state-run and private entities are boarding flights to the United Kingdom, with instruments varying from masala bonds to global depository receipts (GDR) issues and index funds.

At the heart of these issues is the London Stock Exchange. After a flurry of announcements that coincided with the Modi visit, Nikhil Rathi, chief executive officer, LSE Plc, said the bourse was working with the Indian government and companies to explore new and sustainable ways of financing this country's growth.

Rathi sees the recent decision by the government to choose London for raising the finance to rebuild and invest in Indian Railways as testament to the city's strength as the world's leading international financial centre. Indian Railway Finance Corporation plans to raise around Rs 6,000 crore this year. Public sector majors NTPC and Power Finance Corporation are among other public sector bond issuers that have shown interest in offshore rupee bonds.

There are 54 Indian companies listed in London, by primary country of operation, with a combined market capitalisation of £103 billion. Of these, 33 are listed on the Main Market and 21 are quoted on AIM (formerly called the Alternative Investment Market, which allows smaller companies to float shares with a more flexible regulatory system).

Also, in the past two years, London has established itself as the leading centre for offshore rupee debt issuance, the so-called 'masala bonds'. The latter being part of the effort to create a rupee bond market outside of India, the way China has created one for its renminbi.

Went a recent report from Fitch Ratings: "The development of a masala bond market would be positive for Indian firms, opening potentially significant new sources of funding." It added that the market's development beyond a select group of large, higher-quality issuers could take time and would depend on global liquidity, domestic macro economic variables and foreign investor sentiment.

Housing Development Finance Corporation announced the first masala bond programme from the private sector, planning to raise a total of $750 million. In August, the IFC, supported by YES Bank, listed a Rs 315-crore 'green bond' (so termed as these finance projects with positive environmental or climate change benefits) on the LSE.

YES Bank also inked an agreement making LSE the centre for its future fund raising. The private sector bank has said it plans to list a green bond of up to $500 mn by December 2016 and to raise further capital in London, potentially through the listing of GDRs, as part of its "overall $1bn of equity capital raising plans".

Telecom major Airtel also announced plans to raise $500 mn from a pound bond issuance. Other products such as India-focused exchange traded funds (ETFs) have also launched in London. It is not only bonds. The country's largest lender, State Bank of India, has partnered with LSE to build a bond index.

SBI chief Arundhati Bhattacharya stated: "Despite investor appetite to access India's ongoing growth story, Indian issuers' bonds do not have a credible global benchmark for passive investment funds that capture the Indian growth story. The FTSE SBI Indian Bond indices will be a catalyst in the ongoing development and deepening of Indian sovereign and corporate bond markets. It will provide a benchmark for attracting passive funds into Indian bonds as an asset class."

The index will contribute to bond liquidity and dynamic pricing, as well as enable evolution of a secondary market for Indian issuers' bonds, she added.

Devendra Nevgi of Zyfin, which has launched an India-focused fixed income ETF that will list next week, said: "Apart from its advantage as a large and deep market for forex and bonds, London also understands and recognises innovation better. The appetite for newer products is definitely higher. It is also more time zone-friendly as compared to New York."

Nevgi added the huge Indian diaspora and its cultural affinities enhanced the strategic position of London as a preferred centre for Indian issuers.

  • Indian Railway Finance Corp plans to raise Rs 6,000 cr this year
  • Public sector majors NTPC and Power Finance Corporation have shown interest in offshore rupee bonds
  • HDFC plans to raise a total of $750 million
  • In August, the IFC, supported by YES Bank, listed a Rs 315-crore 'green bond' on the LSE
  • YES Bank also inked an agreement making LSE the centre for its future fund raising
  • Telecom major Airtel also announced plans to raise $500 million from a pound bond issuance

First Published: Mon, November 16 2015. 00:25 IST