Export-Import Bank of India (Exim Bank) has signed a memorandum of understanding (MoU) with IL&FS Financial Services Ltd (IFIN) to provide a platform to Indian companies to access the overseas Renminbi bond market.
The total commitments to the Bond Guarantee Facility Programme are targeted at $500 million. The quantum of commitment by Exim Bank and other banks would be decided on case to case basis. Exim bank would act as guarantor to the Indian bond issuers, while IFIN would do the due diligence.
The MoU sets out the guidelines and principles of co-operation between the two institutions on a Bond Guarantee Facility Programme, which will provide a credit enhancement facility to Indian bond issuers in overseas bond markets in internationally accepted currencies other than USD, Euro and Yen.
The bond issuing company would have a better rating if Exim Bank stands as a guarantor, and in turn it would help the issuer get an investment grade from the rating agency, claimed a banker from Exim. Exim Bank would underwrite anywhere between 50 to 95 per cent of the total money depending on the existing grade of the company.
“If a company has a BB+ rating, a 50 per cent guarantee from Exim would get the company an investment grade in the Renminbi market. Such companies generally have considerable overseas exposure and are highly profitable,” said the banker.
IFIN and Exim Bank had successfully worked on the first ever corporate bond issue by an Indian company in the overseas Renminbi (CNH) market earlier in April 2012. The bond issue by the Singapore subsidiary of IL&FS Transportation Networks Ltd (ITNL) was credit-enhanced by an unconditional and irrevocable part-guarantee by Exim Bank for which IFIN had acted as the sole financial advisor.
Exim has brought in four other PSU banks Central Bank of India, Indian Bank, Dena Bank and Bank of Maharashtra as its risk-participating partner in the deal.
Indian companies are increasingly looking for global opportunities for growth, by way of overseas acquisitions and establishment of operations abroad. In order to fund these acquisitions or overseas operations, the companies scout for funds abroad either by way of foreign currency loans or bond issuances.
There is an active bond market internationally with diverse investor base in different currencies such as USD, Euro, Yen, offshore Renminbi (CNH), South African Rand (ZAR), Malaysian Ringgit (RM), Swiss Franc (SF) etc.
(Edited by Prem Udayabhanu)