NEWLY ELECTED INDIAN prime minister Narendra Modi’s first 100 days in office have been marked by nothing sensational other than a vaguely absurdist obsession with his own wardrobe. He has had more outfit changes than a Las Vegas drag queen, popping up in traditional kurtas in an array of colours and styling, wearing a range of hats from curious local headgear to the all-American stetson, and embracing western designer gear when the mood warrants it.
If only his policy output had been equally interesting.
On the radical-policy front, Modi has delivered little in relation to what his victory at the May polls promised. The one initiative that was absolutely spot-on was perhaps not entirely his doing, although I like to think he had a hand in nudging it along. The International Finance Corp, the World Bank arm with the mission statement of ending extreme global poverty by 2030, is finally sinking its teeth into the Indian bond market with a level of engagement that I have only dreamed of in over 10 years of covering that market.
IFC is planning its first domestic rupee bond to help meet its aim of raising around Rs150bn (US$2.5bn) for much-needed infrastructure in the country over the next five years. The multilateral development bank will also engage in swapping offshore currency debt into rupees, and along with the aim of developing Indian infrastructure, it also hopes to deepen India’s rather sorry domestic bond market.
It might be that the ramping up of IFC’s game in India has got other issuers to sit up and notice as well. That perennially foot-dragging Asian Development Bank priced a fortnight ago a domestic rupee bond and is planning to return to the market soon. Let’s hope that rather than supporting the twilight careers of long-in-the-tooth bankers jollying it around Manila, the ADB might actually engage with its own mission statement of eradicating poverty in South-East Asia.
THIS IS CLOSER to what we had hoped for: the Modi effect. Even stodgy, slow-moving behemoths like the ADB and the IFC love a big story, and although little has changed since his arrival other than endless colour features on his sartorial style, Mr Modi has contributed to a change in thinking that has reached down to the crucial arena of India’s bond markets.
Perhaps this change in thinking will also apply to foreign investors in India’s bond markets. These individuals have clearly been turned off investing in the country’s onshore corporate bond market, having utilised just 41% of a US$51bn quota. The question is whether they will embrace the long tenors the IFC is looking to tap, of up to 30 years.
An equally important question is whether they wish to embrace a proposition that has failed to take off other than in Malaysia’s markets – the project finance bond. Although the IFC has said that there will be mismatches between the bond maturities and the funding of infrastructure projects, with financing rollovers a likely feature, the issuance is as close to project finance bond issuance as you are likely to see in Asia.
And I wonder about that, since the Indian project finance landscape has such a fragmented and chequered history, most notoriously with the ill-fated Dabhol power plant debacle of the early noughties, which saw a local government authority renege on a guarantee and a consequent US$2.8bn-equivalent debt default. It’s all very well for IFC to issue project bonds, but the reality is that the elements one wants to see in project finance – a reliable set of raw material providers and off-takers, and a clear legal framework for land acquisition – still aren’t there.
The reality is that the elements one wants to see in project finance still aren’t there
IT’S NOT JUST that. The mauling the rupee received on the foreign exchange markets last year when it lost 20% of its value between January and September has made foreign investors profoundly wary of stepping into the Indian debt markets, hence the low take-up of the foreign investor rupee corporate bond quota. And it will take some doing to get investors to accept long tenor in a project finance market that has traditionally offered short tenors of below 10 years.
Still, in his quieter, possibly hatless moments, Mr Modi appears to have grasped the infrastructure urgency in India. Soon after being voted in, Mr Modi saw to it that seven land projects were fast-tracked for environmental clearance and financial closure.
The hope is that he can streamline approval periods for project finance in India from the prevailing three to four years. He’s inherited a policy from the 2012 five-year plan of allowing foreign banks greater participation in the Indian infrastructure lending market. Let’s hope he puts his foot on the pedal on that one.
While India has a new “clothes horse” in the form of Mr Modi to add to its other colourful diversion of Bollywood cinema, the hope is that something more substantive will emerge in radical policy as the months pass. The IFC and the ADB seem to have grasped the new zeitgeist, and there are glimpses that Mr Modi has too. I just hope that he spend as much time persuading more foreign investors to participate in the Indian infrastructure bond market as he does thinking about whether to wear a stetson, a fedora or a turban.