India May Raise $10 Billion Selling Bonds Overseas This Year

(Bloomberg) -- India plans to raise as much as $10 billion from its first overseas sovereign bonds leveraging on the huge appetite for its debt in the foreign market, a top finance ministry official said.

"It’s a cautious beginning, which we need to make," Economic Affairs Secretary Subhash Garg said in an interview on Saturday. "In terms of risk management I don’t see it exceeding 10-15% of the total borrowing, which makes it roughly about $10 billion."

Sovereign bonds rallied after Garg’s comment on the size of the offering. The yield on the benchmark 10-year debt fell 12 basis points to 6.58%, headed for its best day since June 18.

Prime Minister Narendra Modi faces shrinking options to raise funds amid falling tax revenues to spend on roads, ports and airports and boost a slowing economy. The country’s crippling infrastructure needs about a 100 trillion rupees over next five years as the government aims to boost annual growth to over 8%.

"We should be in a position to design the bond issuance program in the next couple of weeks," Garg said in his office in New Delhi, adding that the government will release more details in September when it announces borrowing plans for the second half of the year.

The details -- timing and size -- of the offering are yet to be finalized but Garg said in a separate interview on Friday that other countries typically tap the market with an issue size of $1 billion to $5 billion once or twice a year.

South Asian Rush

From India’s own neighborhood, Sri Lanka has returned to the market with dollar-denominated bonds for the second time since March, and Pakistan is planning a slew of overseas bond sales in the coming months. Indonesia raised $750 million in its long 10-year bond sale last month, after getting over $1.9 billion of orders.

Finance Minister Nirmala Sitharaman Friday announced surprise moves to lower budget deficit and sell bonds overseas -- a step that’s seen easing pressure on local markets saturated with debt supply.

Investors have been concerned about his plans to borrow a record 7.1 trillion rupees ($104 billion) this fiscal year, a target Sitharaman left unchanged from February’s interim budget.

"The size is higher, but then you’ve had a number of Gulf countries issue larger sizes," said Kaushik Rudra, head of rates and credit research at Standard Chartered Plc in Singapore. "At the right spread, we will see good interest from all quarters -- the U.S., Europe, Asia and the Gulf region."

Lower Interest Rates

Officials see the bond sale as an opportunity to cut interest costs by borrowing abroad at lower rates.

The idea of a sovereign bond has been discussed by Indian governments in the past, but was never pursued. Some former central bankers have opposed the plan, as it’s prone to risks from currency fluctuations. Former Reserve Bank of India Deputy Governor Rakesh Mohan told CNBC-TV18 on Friday that it was a "dangerous move."

"It may make a positive difference to the current account due to the inflow of foreign currency," Garg said. "I don’t see anybody arguing rationally about its adverse impact."

--With assistance from Subhadip Sircar.

To contact the reporters on this story: Shruti Srivastava in New Delhi at ssrivastav74@bloomberg.net;Vrishti Beniwal in New Delhi at vbeniwal1@bloomberg.net

To contact the editors responsible for this story: Shamim Adam at sadam2@bloomberg.net, Unni Krishnan, Karthikeyan Sundaram

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