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India’s maiden $10 billion foreign bond debt sale deal is fraught with confusion

A news report claims the PMO is opposed to selling debt in foreign currencies, a day after a top finance ministry official overseeing the sale was transferred.

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Mumbai/New Delhi: India’s plan for its maiden overseas bond offering is becoming mired in confusion.

The office of Prime Minister Narendra Modi is opposed to selling debt in foreign currencies, ET Now television channel reported Thursday, citing Cogencis news agency. The report comes a day after the top finance ministry official overseeing the $10 billion debt sale was transferred to another department.

Yields on India’s benchmark 10-year debt jumped 12 basis points, the most since January, to 6.55%, on concern the plan will be changed. The sale was announced at the July 5 budget, and had spurred a bond rally on expectation that the government will sell less debt locally.

“The market was expecting a sizable dollar issuance to replace domestic borrowing,” said Badrish Kulhalli, head of fixed income at HDFC Life Insurance in Mumbai. There’s now less clarity over the size and nature of the bond sale, he said.

The plan ran into opposition from the start, with former central bank officials and a key political ally of Modi arguing that India wasn’t ready for an overseas sales given its budget deficit and current-account shortfall. Emerging-market investors though had cheered the announcement as they sought returns with global yields tumbling this year.

Instead of auctioning debt in foreign currencies, the prime minister’s office would favor selling rupee-denominated bonds overseas after receiving feedback, the Cogencis report said, citing officials it didn’t identify.

The developments come just a day after officials had said the government was looking to sell $10 billion of foreign debt, preferably denominated in yen or euros, at one go in October.


Also read: India’s plan to raise $10 billion comes at a time when world is desperate for yield


Casting Doubts

If India abandons a bond issuance in foreign currency, “that means that less investors are likely to participate versus the vast majority of EM debt investors who tend to invest in dollar-denominated sovereign bonds, said Manu George, director of fixed income in Singapore at Schroder Investment Management Ltd.

Subhash Chandra Garg, the top finance ministry official overseeing the bond sale, is seeking early retirement after he was abruptly moved out of the role three weeks after the sale was announced, according to people with knowledge of the matter.

Shifting Garg “will likely put in disarray the plan to launch in October this year,” said Prakash Sakpal, economist at ING Bank NV in Singapore. “His sudden departure at this juncture may not go down well with the market.”

Garg didn’t answer multiple calls and a text message to his mobile phone. D.S. Malik, a finance ministry spokesman, said it is “not a subject matter concerning my ministry.” Sitanshu Kar, the government’s principal spokesman, couldn’t comment.

The Indian rupee swung to a loss, trading 0.1% down to 69.01 to a dollar. – Bloomberg

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