Thursday, December 6, 2007

World Bank to issue bonds in Re denomination

The World Bank plans to issue Rupee – denominated bonds worth USD 500 million (Rs 19.70 billion) to help global investors diversify their holdings by adding rupee-denominated securities, reports MINT.

World Bank received the Indian government's approval to issue rupee – denominated bonds overseas. One of the reason for world bank to issue Rupee denominated bonds is diversification by the overseas investors in investment.

There is huge demand for long-term INR (Rupee) bonds on the part of global fixed-income investors. Global investor cannot afford to have less than 1% of total fixed-income investment in bonds issued by the country, which has over 2% of world gross domestic product (GDP) and is one of the fastest growing economies.

The banks`s bond issue is part of a trend – the internationalization of the Rupee. Earlier this year, Inter-American Development Bank (IADB), a multilateral development institution for Latin American and Caribbean countries, made two issues of rupee-denominated bonds overseas to raise USD 400 million in all, said the finance ministry official. The issues were successful on account of an eagerness among global investors to buy Rupee-denominated assets, he added.

The issues are largely driven by investor demand, said AV Rajwade, a forex consultant in Mumbai. The Rupee as an invoicing currency is not getting acceptance, but it as an investment currency is getting acceptance.

Strong demand was seen for LADB to price the rupee-denominated bonds at an interest rate that was about a percentage point lower than yields on comparable government securities traded in India.

Offshore rupee bonds such as the ones issued by IADB , are an extension of the non-deliverable forward (NDF) markets in the rupee. NDFs started off as forwards contracts, done over the telephone, where investors take a call on the future exchange value of the rupee against the dollar. The NDF rupee market developed on account of tight restrictions in India's forward market for forex contracts.

Similar restrictions in the domestic bond market have led to the Rupee-denominated bonds being sold overseas. Consequently, IADB did not have to approach the Indian government for permission to issue Rupee-denominated bonds, but the World Bank did so as India is a member.

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