The Province of British Columbia has successfully issued an Indian Rupee denominated bond on the London Stock Exchange, making it the first-ever foreign government to issue a bond in the Indian offshore market and strengthening increasingly important trade and investment ties with India, Finance Minister Mike de Jong announced.
A bond that raises Indian Rupee (INR) funds from global investors outside of India is colloquially known as a “Masala” bond. B.C.’s three-year-term Masala bond was priced to yield 6.62% semi-annual, and raised 5 billion INR, or about C$97.5 million, equivalent. A Masala bond is also called a synthetic INR note because payments under the bond are in U.S. dollars based on the prevailing INR/US dollar exchange rate.
Bond proceeds were immediately reinvested in a Masala bond issued to the Province by the Housing Development Finance Corporation Limited (HDFC) of India, which will generate a positive return for taxpayers and protect against foreign exchange risk. HDFC is one of the largest originators of housing loans in India, specializing in providing housing finance primarily for the purchase and construction of residential housing. The company is well established and has a domestic credit rating of triple-A. Net income on the INR investment will be used to support and expand the Province’s trade and investment activities in India.
Being the first foreign government to issue a Masala Bond, the Province continues its reputation as an innovator and leader amongst its AAA-rated peers in diversifying sources of funding. This bond issue also demonstrates the Province’s confidence in the outlook for India, and positions B.C. to participate in internationalization of the INR and India’s economy, according to an official press release.
India is one of the world’s fastest-growing emerging markets, and British Columbia values the ongoing business and economic partnerships, and is taking many steps to strengthen the relationship including:
* Trade and Investment Representatives in Vancouver, Mumbai, Bangalore and Chandigarh are trained to help British Columbians find export opportunities in India.
* The Business Accelerator in Bangalore offers British Columbians a dedicated work environment and the support of local trade and investment representatives to grow their business in India.
* The B.C. government has committed $5 million over three years to promote a stronger B.C. wood brand in India. This investment is helping B.C. companies establish themselves as the world’s leading suppliers of sustainably harvested wood products to a market that includes the world’s largest middle class.
* B.C. is also working on a reciprocal arrangement where representatives from the Province of B.C. would work in India to learn and share their knowledge and experience, and representatives from India would come to B.C. to do the same.
B.C. has established a reputation as leader in leveraging international bond issuances to open doors to new investors and raise British Columbia’s profile in the Asia-Pacific region. The Province of B.C. was the first foreign government to issue bonds into the offshore Chinese Renminbi market in 2013, and the first foreign government to be approved by Chinese authorities to issue in China’s domestic bond market in December 2015, following which the Province issued a domestic bond in January 2016.
B.C. appointed HSBC and TD Securities as joint lead managers and Scotiabank as co-manager for its Masala bond. The issue was more than three times oversubscribed with investors from North America, Europe and Asia, taking 56%, 30% and 14% respectively.
De Jong said: “India is one of the fastest-growing economies in the world and is one of B.C.’s priority export market partners. We are delighted at the prospect of strengthening and expanding bilateral relations.
“The Masala bond issuance offers British Columbia a means to become well-positioned to profile our confidence in the outlook for India, and to participate in the internationalization of the Rupee and India’s economy. We are pleased to know proceeds from the bond will be put to work in India’s housing industry by HDFC, a well-established corporate leader that finances an industry in which we aspire to grow our B.C. wood exports.”
High Commissioner of Canada to India Nadir Patel said: “This bold move by the Government of B.C., to be the first sovereign government to issue a Masala bond, highlights the confidence that B.C. and Canada are showing in the Indian economy. It reflects our strongly held view that India continues to improve its economic outlook under the leadership of Prime Minister [Narendra] Modi. This back-to-back issue, where the proceeds will be re-invested in India through the Housing Development Financing Corporation shows that B.C. and Canada continue to find imaginative ways to invest in India to help it achieve its core objectives of building needed infrastructure for this fast emerging economy. Furthermore this will increase Canada’s already substantial investments, estimated to be in the order of $15 billion in India’s infrastructure.”
Housing Development Finance Corporation Limited (HDFC) Chairman Deepak Parekh added: “I am delighted to announce that HDFC has issued INR 5 billion of Rupee Denominated Masala Bonds to the Province of British Columbia, today. We feel privileged to have the Province, a sovereign, as an investor into HDFC.
“We are pleased to know that the Province of British Columbia has also successfully placed INR five billion of Rupee Denominated Masala Bonds and utilized the proceeds to invest into HDFC’s Masala Bond Issue. This transaction is a landmark deal as it opens up a new market for sovereign issuers and investors.”
Nikhil Rathi, CEO, London Stock Exchange plc and Director of International Development, London Stock Exchange Group, said: “London Stock Exchange congratulates the leadership shown by the Government of British Columbia in being the first ever sovereign Masala bond issuer globally. British Columbia has led the way in building new markets in Canada and around the world, and we are proud they have chosen to access the widest range of international investors through London, the global centre for masala bonds. Together we are building an exciting and deep additional channel of finance for Indian infrastructure.
“London Stock Exchange has hosted this year the world’s first Indian corporate Masala bond by HDFC and the world’s first green Masala bond by NTPC and is also a leading centre for Canadian and sovereign issuers in a range of currencies. We look forward to building on this partnership in the future.”
* By 2030, India is expected to be the world’s third-largest economy behind the United States and China.
* Real GDP in India was 7.2% in 2014, and estimated to grow 7.6% in 2015, and in 2016 is expected to be 7.4%.
* B.C. exports to India have jumped from $201 million in 2011 to $623 million in 2015, making India B.C.’s fifth-largest trading partner.
About Housing Development Finance Corporation Limited (HDFC):
* HDFC Ltd. was founded in 1977 as a public company specializing in providing housing finance primarily to individual households and corporates for the purchase and construction of residential housing.
* HDFC Ltd is India’s first retail housing finance company and is currently one of the largest originators of housing loans in India.
* As at March 31, 2016, HDFC had gross loans outstanding of INR 2,915 billion (about US$42 billion equivalent).
* Since inception, HDFC Ltd has financed over 5.4 million housing units. Seventy-seven per cent of shareholders in HDFC Ltd are foreign investors.
* The corporation’s current market capitalization stood at INR 2,079 million (about US$31 billion equivalent).
* Over the years, the HDRC group has emerged as a significant financial conglomerate in the Indian capital markets with a presence in banking, life insurance, asset management, property funds and education finance.