Offshore rupee-denominated bonds worth $1.4 billion have been issued by the World Bank’s lending arm and other global institutions since the beginning of this year, responding to robust demand buoyed by India’s inclusion in JP Morgan’s widely followed emerging market debt index, according to banking sources.
Compared to last year’s total issuance of $3.3 billion, the current bond issuance represents a significant portion, indicating heightened investor interest. Most of last year’s issuances occurred in the fourth quarter, coinciding with foreign investors’ increased appetite for rupee debt following JP Morgan’s announcement of India’s inclusion in the Emerging Market Bond Index (EMBI) from June 2024.
These offshore bonds, with maturities ranging from 4 to 10 years, are denominated in Indian rupees but settled in U.S. dollars, offering issuers access to cheaper U.S. funds while providing overseas investors exposure to rupee-denominated debt without the need for special licenses or local tax obligations.
Kenneth Akintewe, head of Asian sovereign debt at abrdn, noted the growing prominence of the supra market, indicating that global investors are generally inclined towards Indian risk. Mitul Kotecha, head of currency and emerging market macro strategy for Asia at Barclays, highlighted the straightforward nature of offshore rupee bonds as a channel for investors seeking exposure to Indian debt.
The World Bank’s lending arm, the International Bank for Reconstruction & Development (IBRD), has been a prominent issuer, with recent offerings including a 6-year bond at a yield lower than onshore sovereign yields. Other supranational institutions, such as the European Bank for Reconstruction & Development, Inter-American Development Bank, and the Asian Infrastructure Investment Bank, have also participated in rupee bond issuances.
Leading banks including JP Morgan, Goldman Sachs, Standard Chartered Bank, and HSBC have facilitated these transactions, with issuers typically converting rupee bond proceeds into U.S. dollars to finance global projects. The appeal for issuers lies in the cost efficiency of raising funds in dollars while accessing a broader investor base.
Long-only traditional asset managers typically account for the majority of bond purchases, with short-term investors also participating to capitalize on passive investment inflows spurred by index inclusion announcements.
The surge in offshore rupee bond issuance underscores the growing attractiveness of Indian debt among global investors, driven by favorable yields and easier access facilitated by offshore markets.
