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New Delhi: The London Stock Exchange (LSE) is wooing Indian rupee bond issuers to list on it, close on the heels of HDFC announcing its intent to list its rupee bond issuances in London.

In a meeting on Friday with prominent state-run companies exploring bond issuances, LSE pitched its large investor base and foreign exchange market to encourage firms to explore listing in London.

The other options available to Indian companies to list their bonds include the Singapore Stock Exchange and the Luxembourg Stock Exchange.

In September, the Reserve Bank of India issued guidelines allowing domestic companies to raise rupee-denominated overseas bonds. Subsequently, India Infrastructure Finance Co. Ltd (IIFCL), Indian Railway Finance Corp. Ltd (IRFC) and NTPC Ltd were among the state-owned companies to begin the groundwork to issue rupee-denominated bonds sometime early next year, Mint reported on 26 October.

Rupee-denominated bonds will help these institutions raise cheaper funds from overseas markets, simultaneously shifting the burden of hedging against foreign currency fluctuations to the investors buying these bonds.

To encourage more investors to subscribe to these issuances, the government recently announced some tax sops for investors, including lower withholding tax and exemption from capital gains arising out of currency fluctuations.

So far, only the International Finance Corp., a unit of the World Bank Group, has issued the so-called masala bonds. These bonds are listed on the LSE.

These efforts are part of the broader India-UK strategic partnership envisaged during Prime Minister Narendra Modi’s recent UK visit, said Nikhil Rathi, CEO of LSE Plc and director of international development.

“London has the largest global foreign exchange market in the world. We have the largest international secondary fixed income market. India is now going global. Given the scale of financing required by India, it makes sense for India to be deeply connected to the major global financial centres," he said. “India is the fastest growing economy in the G-20 and there is demand for the Indian paper."

“Though Indian firms have the option of raising funds through private placements, long-term investors, especially pension funds, will prefer if the bonds are listed as a sign of credibility," Rathi said.

IIFCL said the company will explore all options before taking a decision.

“It is important for Indian sovereign-backed entities to utilize this fundraising option and list on exchanges to ensure that the yield curves remain low," said S.B. Nayar, chairman and managing director of IIFCL. “Till now, infrastructure lending has been mainly financed by banks. But going forward, banks will not be in a position to lend to infrastructure due to capital constraints. Nobody will want to take an exposure to a fresh unrated project once the Basel III norms come in," he pointed out.

In a note dated 25 November, Standard & Poor’s Ratings Services said masala bond issuances could reach the $5 billion mark in the next two-three years.

“Issuer creditworthiness, India’s economic growth trend, and investors’ view of currency risk will all play equally important parts in the growth of masala bonds, given the medium- to- long-term tenor of these instruments," the report said.

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