India is banking on the novelty of a debut offering at a time when investors are desperate for returns as the world’s pile of negative-yielding debt grows to a record $13.4 trillion. While Saudi Arabia and Argentina have raised more money in recent years from international bond sales as emerging markets return in popularity, Prime Minister Narendra Modi’s government will be working to a tight timeline.
“Market technicals are very strong, and the country is on a positive political trajectory, so why not strike while the iron is hot,” said Todd Schubert, the head of fixed-income research at Bank of Singapore. The surprise would be if there’s no dollar tranche as “one would think that building an Indian sovereign curve would also be a strategic goal, and that can only be done in dollars.” Finance ministry spokesman D S Malik didn’t immediately respond to calls.
The maturity of the bonds could be 10 years or more, the people said. The current thinking among officials is that a larger sale would be more attractive to investors than breaking the fundraising task into smaller parts, because costs would be lower.
The government doesn’t plan to hedge the proceeds as that would increase costs, the people said. The central bank is in agreement with the plan to raise debt overseas, the officials also said. The debt sale would follow a slew of sovereign issuance by emerging market countries this year. Indonesia sold 3.4 per cent bonds due 2029 at 130.50 basis points over Treasuries in June, while the Philippines issued 10-year notes at 110 basis points in January. Russia sold 2029 dollar bonds at a 3.95 per cent yield, and Saudi Arabia issued 2 billion euros of bonds due in 2039 at 140 basis points over mid-swaps.
“We think an Indian sovereign Eurobond issue would be very well received in today’s markets,” said Gregory Smith, fixed-income strategist at Renaissance Capital in London. “With US 10-year Treasuries yielding close to 2 per cent, the search for yield continues, plus foreign investors would be looking to realise long-sought-after exposure to the Indian economy.” Global bonds have rallied this year as major central banks turned dovish, with the slide in Treasury yields spurring investors to pile into emerging-market debt. Yields on India’s benchmark local-currency bonds, which foreign investors have limited access, have dropped almost 180 basis points from a September high.
The South Asian nation’s regulators have capped holdings of sovereign debt by overseas investors, who are allowed to own only about 6 per cent of total outstanding bonds, while peers like Indonesia and South Korea have no restrictions. Still, given that India has one of the highest budget deficits in Asia, an attempt to sell $10 billion at one go may be challenging, some investors said.