» Business » Overseas sovereign bonds are happening, but in tranches

Overseas sovereign bonds are happening, but in tranches

By Arup Roychoudhury
August 02, 2019 15:08 IST
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An official said that people in the government were aware of the benefits as well as the drawbacks of issuing overseas sovereign bonds, and there will be consultations with all stakeholders.

Illustration: Dominic Xavier/

The government will go ahead with its plan to issue overseas sovereign bonds.

It will do so in tranches after wider consultations with all the regulatory and market stakeholders, a senior finance ministry official said on Thursday.


The official said the first tranche is unlikely to be ‘humongous’, even as discussions on the shape and structure of the bonds are still being discussed.

The official also said that overseas bonds will be issued in different tenors - from those with a five- to seven-year maturity to long-term bonds above 20 years.

“There needs to be credibility around the government.

"The investors are going to question your Budget announcements if you don’t fulfil them.

"We can’t brush those aside. We need to build credibility to ensure we do what we say,” the official told reporters, adding, “The ideal way to do this would be in different tranches and tenor, in an order to develop the market.”

The official said that people in the government were aware of the benefits as well as the drawbacks of issuing overseas sovereign bonds, and there will be consultations with all stakeholders.

This was an indication that in spite of widespread criticism, the Centre would go ahead with its plan as announced in the Budget.

Finance Minister Nirmala Sitharaman, in her maiden Budget speech on July 5, had announced: “India’s sovereign external debt to gross domestic product is among the lowest globally, at less than 5 per cent.

"The government would start raising a part of its gross borrowing programme in external markets in external currencies.

"This will also have a beneficial impact on the demand situation for the government securities in the domestic market.”

"The relevant paragraph in the Budget remains our reference point for this.

"The process of consultation is ongoing, and the details will be finalised at a later date,” said the official.

According to the existing plan, the bonds will be issued in the second half of 2019-20.

Government officials have clarified that 10 per cent of the year’s total gross borrowing requirement will be raised overseas.

That amounts to roughly $ 10 billion.

There were reports that the Centre was considering the option to raise $ 10 billion in one go from its first overseas bond sale as early as October.

However, as reported in Business Standard, in an attempt to set a benchmark and create a market, the first tranche of sovereign bonds could be around $ 3-4 billion, and will likely be simultaneously launched in major financial centres, such as London, Singapore, Hong Kong, New York and others.

Also, the government favours a long term-tenor for the bonds - no less than 20 years - and top officials will embark on roadshows to drum up investment once the contours are finalised.

The roadshows to major financial cities to meet big institutional investors could include Sitharaman, Minister of State for Finance Anurag Thakur, Reserve Bank of India (RBI) Governor Shaktikanta Das, Chief Economic Advisor Krishnamurthy Subramanian and others.

Unlike the domestic bonds issues by the RBI, the finance ministry issuing these bonds will start talking to investment banks from August onwards to get a better understanding of the global bond markets.

The contours of the instrument will be finalised by October, including the currency these bonds will be pegged at - whether dollar, euro, yuan or others.

Since the Budget announcement, the Narendra Modi government has not only received criticism on the matter from former Reserve Bank governors Raghuram Rajan and Y V Reddy, and others like Rathin Roy of the Economic Advisory Council to the Prime Minister, but also from its affiliates like the Rashtriya Swayamsevak Sangh and Swadeshi Jagran Manch, who are learnt to have called for a rethink on the matter.

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Arup Roychoudhury in New Delhi
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