Asian Development Bank may look at fresh issuance of rupee-denominated bonds

In the past, ADB raised funds in rupee-denominated bonds to finance projects in India

May 02, 2023 12:59 pm | Updated 12:59 pm IST - Incheon

The multilateral funding agency Asian Development Bank is planning to raise funds in rupee-denominated bonds to finance projects in the country. Image for representational purpose only.

The multilateral funding agency Asian Development Bank is planning to raise funds in rupee-denominated bonds to finance projects in the country. Image for representational purpose only. | Photo Credit: Reuters

ADB president Masatsugu Asakawa on May 2 said the bank will explore the option of raising resources via rupee-denominated bonds.

Raising funds in local currency reduces forex volatility, he said here.

"We are encouraged to increase our local currency financing to avoid any kind of foreign exchange risk," he said.

The decision will be based on market condition, demand and supply, he added.

In the past, the multilateral funding agency Asian Development Bank (ADB) raised funds in rupee-denominated bonds to finance projects in the country.

In January 2021, the ADB listed 10-year masala bonds or Rupee denominated bonds, worth ₹300 crore on global securities market platform of India INX, the international exchange located at International Financial Services Center- Gift City in Gujarat.

Prior to this, the ADB raised ₹850 crore, about $118 million, from a new issue of offshore Indian rupee-linked 10-year bonds.

This represented ADB's first new maturity raised in Indian rupees since 2017 and contributes to an established yield curve which stretches from 2021 through 2030 with ₹7,240 crore or $1 billion of outstanding bonds.

Besides Indian Rupee, ADB has raised resources from other local currency bonds including Georgian lari, Indonesian rupiah, Kazakhstan tenge, and Philippine peso.

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Speaking to reporters at the start of the 56th ADB's annual meeting of its Board of Governors, he said that the $25 billion investment into India over the next five years is subject to approval from the Board and not yet decided.

"It is my ambition. However, India has the largest requirements in South Asia right now. In my conversation with Prime Minister Narendra Modi during the bilateral meetings, PM Modi emphasised the importance of continuous construction of infra and renewable energy," he said.

Mr. Asakawa had conveyed to PM Modi during his visit in February that ADB's intention to provide $20 billion-$25 billion in resources over five years was to advance the country's aspirations for fast, inclusive, and green growth.

Stressing that India is the fastest-growing large economy, Mr. Asakawa said, India's economic growth will be beneficial for the entire South Asian region, including countries like Sri Lanka and Pakistan, that were facing food and energy crises.

While, ADB slashed India's GDP growth forecast for FY23 to 6.4% from its earlier projection of 7%, but for FY24, the growth rate is expected to be 6.7% on the back of consumption, private investment and growth in industry.

India has been seeking an increase in investments in priority sectors of clean energy, infrastructure spending and climate financing from multilateral lending institutions, even as it has been pushing for efforts to boost financial inclusion.

Last month, the bank announced plans to provide at least $14 billion over 2022-2025 as support to ease a "worsening food crisis" in Asia and the Pacific, while aiming to improve long-term food security by strengthening food systems against the impact of climate change and biodiversity loss.

The Russian invasion of Ukraine has disrupted food staples and fertilizer supplies, straining a global food system already weakened by the climate change impact and pandemic-related supply shocks.

Mr. Asakawa also announced ADB's newest climate finance program: the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP).

"The climate events we have experienced over the past 12 months will only increase in intensity and frequency, so we must take bold action now. IF-CAP is an exciting, innovative program that will have a real impact. And it is another example of how ADB serves as the climate bank for Asia and the Pacific," he said.

IF-CAP's initial partners are Denmark, Japan, the Republic of Korea, Sweden, the United Kingdom, and the United States.

Those partners are in discussions with ADB about providing a range of grants for project preparation along with guarantees for parts of ADB's sovereign loan portfolios.

The reduced risk exposure created by the guarantees will allow ADB to free up capital to accelerate new loans for climate projects.

With a model of '$1 in, $5 out', the initial ambition of $3 billion in guarantees could create up to $15 billion in new loans for much-needed climate projects across Asia and the Pacific, he said.

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