India could raise US$10b from first foreign bond sale

[NEW DELHI] India plans to raise as much as US$10 billion from its first overseas sovereign bond 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 per cent of the total borrowing, which makes it roughly about US$10 billion."

Sovereign bonds rallied for a second straight session after 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.

"We should be in a position to design the bond issuance program in the next couple of weeks," Mr 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.

While he didn't specify if the money would be raised in tranches, Mr Garg in a separate interview to BloombergQuint on Friday said other countries typically make issuances of US$1 billion to US$5 billion once or twice a year.

From India's own neighbourhood, 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.

CURRENCY RISKS

Prime Minister Narendra Modi faces shrinking options to raise funds as a slowing economy crimps tax revenue. Investors have been concerned about his plans to borrow a record 7.1 trillion rupees (S$141.3 billion) this fiscal year, a target Ms Sitharaman left unchanged from February's interim budget.

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," Mr Garg said. "I don't see anybody arguing rationally about its adverse impact."

BLOOMBERG