World Bank Rupee bonds: The World Bank's financial arm, along with other global institutions, has propelled the issuance of offshore Rupee-denominated bonds to $1.4 billion this year, driven by robust demand following India's inclusion in JP Morgan's widely tracked emerging market debt index, revealed sources familiar with the matter.

The surge in bond issuance since January marks a significant uptick compared to the $3.3 billion issued throughout 2023, according to banking sources actively involved in supranational bond trading, basing their assessment on data from multiple financial institutions.

Last year's issuance, predominantly concentrated in the fourth quarter, coincided with heightened investor interest in Rupee-denominated debt after JP Morgan announced India's forthcoming inclusion in the Emerging Market Bond Index (EMBI) scheduled for June 2024.

These offshore bonds, spanning maturities ranging from 4 to 10 years, are denominated in Indian Rupees but settled in US Dollars, noted the sources, who spoke on condition of anonymity due to lack of authorisation to engage with the media.

Typically boasting lower yields compared to Indian government bonds, offshore Rupee bonds offer issuers an avenue to raise US funds at more favorable rates, while providing foreign investors access to Rupee-denominated debt without the complexities of onshore operations or local tax obligations, added investment bankers.

Kenneth Akintewe, abrdn's head of Asian sovereign debt based in Singapore, emphasised the growing allure of the supra market, particularly among global investors who are generally inclined towards India's risk profile.

Mitul Kotecha, Barclays' head of currency and emerging market macro strategy for Asia, highlighted the accelerated issuance of offshore Rupee bonds following JP Morgan's inclusion decision, citing them as a straightforward investment avenue for investors seeking exposure to Indian debt without intricate local arrangements.

Among the notable issuers, the World Bank's lending arm, the International Bank for Reconstruction & Development (IBRD), led several bond offerings, including a 6-year bond issued this month at a yield of 6.89%, below the onshore sovereign yield.

Other "AAA" rated supranational entities, such as the European Bank for Reconstruction & Development, Inter-American Development Bank, and the Asian Infrastructure Investment Bank, have also entered the fray, with JP Morgan, Goldman Sachs, Standard Chartered Bank, and HSBC among the prominent arrangers, as per banking sources.

The appeal of Rupee bonds lies in their ability to fund global projects by converting proceeds into US Dollars, benefiting from the significant demand for Rupee-denominated debt, resulting in Dollar funds being cheaper by 15-25 basis points compared to prevailing US rates.

A managing director for emerging markets at a British bank highlighted the attractiveness for issuers, allowing them to trim Dollar costs and tap into a broader investor base. Traditional asset managers typically absorb the lion's share of issued amounts, with short-term investors eyeing opportunities to capitalise on passive investment inflows triggered by index inclusion, the banker added.

(With Reuters inputs.)