Accessing the global capital markets Partnership opportunities with Indian Issuers

Transcription

1 Accessing the global capital markets Partnership opportunities with Indian Issuers Page 1

2 Masala Bonds Page 2

3 India UK Finance Partnership We will work together with the British Government, industry, and the financial market to deepen our relationship and harness that interest in India s infrastructure. Very soon, these bonds will become strong instruments for engagement between our financial markets. Narendra Modi We will also increasingly raise funds in London s financial market. I am pleased that we will issue a railways rupee bond in London stock market. This is for this is where the journey of Indian Railways had begun. Narendra Modi र प ब ड अपन आप म भ रत क आर थ क स पन नत क एक महत वप र ममश रर ह और हह द स त न क हर न गररक क इसक ग रव क र प म द खन च हहए और इसक उज गर करन च हहए, तभ त भ रत क त क त बढ त ह Narendra Modi It s a real opportunity to open a new chapter in the relationship between our two countries. David Cameron Today, we have outlined a bold and ambitious vision for our strategic partnership, and the decisions we have taken today reflect our firm commitment to pursue it and the confidence to achieve it. Indeed, the outcomes today have shown that we have already taken our relationship to a new level. Narendra Modi Source: Joint press release UK-India Summit, 12 November 2015, Page 3

4 LSEG at the heart of India-UK EFD London Stock Exchange is one of the premier hubs globally for any financial activity Arun Jaitley, Honourable Minister of Finance 13 March 2015, international investors roundtable, LSE London Stock Exchange has more Indian companies listed on our equity and debt markets than any other international market and provides cutting edge technology to some of India s leading exchanges. India s most dynamic companies have access to the world s largest pool of institutional investment capital here in London. Xavier Rolet, CEO, LSEG Roundtable with Railways Minister, 30 October Nov 2014, IFC Market Open, LSE Strengthening the economic and financial links between India and the UK is a key priority for the government, and a stable and competitive financial services industry in the UK is an important asset to the UK and to the rest of the world. Priti Patel, Exchequer Secretary to HM Treasury and the Prime Minister s Indian Diaspora Champion Page 4

5 India's financing requirements India s financing estimates India is forecast to be the fastest growing economy in the G20 in 2015 and The World Bank has estimated that in this decade alone, India s infrastructure investment needs could reach USD1.7 trillion1. The CII has estimated that India s economy will need USD 4.7 trillion investment over the next 5 years to achieve 7% growth per annum2. Accessing the world s deepest pools of capital Financing requirements on this scale can partly be achieved by tapping into the deep pools of capital and international investor base of a world leading global financial centre such as London. Green finance - accessing a wider range of investors London Stock Exchange (LSE) has the most comprehensive set of green bond segments of any international exchange. The development of a masala bond market would be positive for Indian firms, opening potentially significant new sources of funding. Fitch Ratings Asia's%20Infrastructure%20Gap_Web.pdf 2 CII study, September 2014, Page 5

6 Raising international profile A competitive environment Securing the right profile for bond listings is significant in an environment where companies are competing for capital. Listing in a global market such as London raises a company s international profile, especially when the offshore market has high international regulatory standards. London is home to the deepest global debt capital market with a globally oriented investor base and the deepest global foreign exchange centre. LSE markets are supported by a network of 350 member firms from over 20 countries*, including banks, agency brokers, market makers and proprietary traders. Fostering investor confidence Listing should be encouraged in jurisdictions that meet rigorous criteria on process of listing, disclosure, transparency, and have a consistent, independent document vetting process. This fosters greater investor confidence and avoids potential conflicts of interest. *Source: LSEG, as of September 2015 Page 6

7 Developing strong secondary markets Over time, with a successful pool of primary market issuance, we believe the infrastructure could be developed to support secondary market liquidity, thereby generating more efficient financing opportunities for Indian corporates. G20 has committed to developing transparent secondary markets. Liquid and transparent secondary markets typically reduce the cost of raising debt, as investors are willing to pay a premium for securities with liquid secondary markets1. Studies consistently underscore that liquidity is an important determinant of the cost of raising capital for issuers. For instance, investment banking fees for securities in the most liquid vs. the least liquid quintile differ by 21%2. 1 Developing government bond markets, World Bank (2001), p Stock Market Liquidity and the Cost of Issuing capital (2013) Butler et al. Page 7

8 Developing strong secondary markets (2) The development of Indian Fixed Income indices Indices can be created to allow comparative measuring of bonds - secondary market liquidity is crucial as these indices need to be investable. The natural evolution is then the creation of ETFs which add a further boost to liquidity, further reducing costs of raising capital. The world s first India Fixed Income ETF was launched in London on 19 November LSE and SBI are collaborating on the creation of the FTSE SBI Indian Bond Index. Page 8

9 Complementary Markets The London market can over the medium to long-term facilitate the development of liquidity in secondary market without undermining the crucial role of Indian markets in pricing credit. Core price formation for Indian credit remains in the Indian market as the London time zone trades a number of hours after the Indian market opens. A thriving Masala bond market in London would not compete with the Indian market in the Asian time zone, but would ensure continuous global trading conditions and support more efficient pricing. Page 9

10 London Stock Exchange s Global Reach London Stock Exchange is now the largest Masala bond centre globally. Ever since the first Masala bond listing in London in 2007, we are firmly committed to developing long-term strategic partnerships with issuers to ensure the success of this financing stream and help Masala bonds evolve from specialist to a mainstream asset class. Addressing climate change is a priority for IFC in India. IFC s green Masala bond demonstrates the powerful role of capital markets in mobilizing savings for climate finance and a listing in London allows us to attract the widest possible range of international investors August 2015, IFC press release for INR 3.15bn Green Masala Bonds 13 August 2015, IFC & Yes Bank Market Open, LSE In response to strong investor demand, IFC increased the bond from 10 billion to 16 billion rupees. The overwhelming majority of investors are asset managers in Europe and North America. Apr 2015,IFC press release for INR 16bn, 3year 6.45% bond IFC issued the bonds in London to leverage the city s standing as a premier financial centre. The vast majority of investors are European insurance companies., Nov 2014, IFC press release for INR 10bn, 10year 6.3% bond Page 10

11 Listing Venue of Choice for Masala bonds 11 bonds denominated in Indian rupees are listed on our markets. Historically, 27 INR bonds have been listed in London with Supranationals, Sovereign and Agencies (SSA s) have become repeat INR issuers over the years those include Inter-American Development Bank, European Bank for Reconstruction and Development and International Finance Corporation. 4 new Masala bonds were listed on London Stock Exchange s markets in 2015 and 10 in 2014 Following the Reserve Bank of India's revisions to the External Commercial Borrowing framework in April 2015, LSE stands ready to support first-time Masala bond issuers with India-dedicated resources, as well as the unique experience and network it has built up at the heart of London s financial community over the years. LSE s broad range of bond markets can accommodate the debt listings of companies reporting in either Indian GAAP or IFRS. There is currently no need for Indian corporates to re-state accounts for Main Market listing as Indian GAAP is equivalent to IFRS until March Indian GAAP is and will remain eligible for listing on the Professional Securities Market (PSM). LSE s offering consists of a flexible range of market models, covering both Regulated Market (RM) and MTF segments, retail and wholesale, and offering the choice of trade reporting, end-of-day and continuous quoting. Page 11

12 Masala bonds on London Stock Exchange Indian Rupee Bonds on the Main Market Issuer Issue Date Size Tenor IFC 6.45% 30/10/ Aug m 5yrs EBRD 5.1% 02/02/17 24-Jun m 1yr IFC 6.45% 30/10/ Apr m 3.5yrs EBRD 5.1% 02/02/17 02-Feb m 2yrs IFC 6.3% 25/11/24 18-Nov m 10yrs EBRD 5.625% 15/03/17 28-Oct m 2.4yrs EBRD 5.75% 19/03/18 19-Sep m 3.5yrs IDB 6% 05/09/17 05-Sep-14 78m 3yrs EBRD 6% 03/03/16 03-Sep m 1.5yrs IDB 6.1% 02/09/16 02-Sep m 2yrs IDB 8.25% 15/05/17 15-May m 10yrs Page 12

13 Masala bonds on London Stock Exchange (2) Indian Rupee Bond Issuance Snapshot Main Market Number of Masala bonds listed Number of Masala bond issuers Capital Raised in INR (GBP equivalent) Active issuance maturities (from issue date) 27 (11 active) 5 (3 active) 1,787 million 10y, 5y, 3.5y, 3y, 2.4 y, 2y, 1.5y, 1y Secondary market Order book trading, continuous market making, end-ofday pricing, and trade reporting only Total number of bonds listed 17,758 Number of jurisdictions 70 Number of currencies 38 Regulatory Authority UK Listings Authority Listing fees (standalone issue) UKLA charges a 2,750 vetting fee and a 1,100 eligibility fee (no extra application or annual fee). The fee for admission to trading on LSE is based on the face value of the security at the date of admission, up to a maximum of 4,200. LSE charges no annual fee. Page 13

14 Announcements during PM Modi s visit Company New Deals Deal Size Announcement Bharti Airtel Zyfin and Sun Global HDFC Intended issuance of maiden sterling bond in London Listing the world s first India fixed income ETF on London Stock Exchange Intended issuance of offshore Rupee denominated bonds in London 500m The bond issue will help Bharti extend maturities and diversify investor base n/a Up to USD 750m equivalent on its debt portfolio LSE is the broadest ETF market in Europe. This ETF will give international investors access to the Indian fixed income market, which is worth USD 1.3 trillion and is a vital source of finance for the infrastructure sector There is renewed vigour in the India-UK relationship and HDFC is delighted to announce its intention to list its bonds on London Stock Exchange. UK is the global hub for financial services and the Reserve Bank of India s guidelines permitting overseas rupee-denominated bonds, will open up a new source of funding for us, Deepak S. Parekh, Chairman, HDFC Yes Bank SBI-LSEG Signing of MoU to foster joint collaborations on bond and equity issuance in London, with a strong focus on Green Infrastructure Finance. Construction of FTSE-SBI India Bonds Indices to be used initially by a new investment fund run by SBI Intended up to USD 500m in Green Bonds and USD 1bn in equity GDRs n/a Both financial institutions will leverage their complementary strengths to facilitate access to capital raising in London and India for Indian entities and will work jointly on the development of a wide range of new products. Through this collaboration both parties also demonstrate their commitment to the promotion of products and platforms supporting the use of Green Finance These indices, to be launched in the first half of 2016, will facilitate investment into India's bond markets and support market liquidity and pricing Railway bond Issuance of offshore Rupee denominated bonds in London n/a We are set to launch a railway bond in London. It is appropriate as the journey of Indian Railways started in the UK PM Modi Page 14

15 India UK Economic and Financial Dialogue The India UK Economic and Financial Dialogue is expected to take place in London in January 2016 with the participation of both finance ministers. This will be the occasion for all market participants to come together at the heart of the global capital markets, share their views and expertise and further strengthen the partnership between India and the UK. Page 15

16 Indian Companies are well-served by a London Listing LSE provides issuers with multiple entry options Largest Investors in London in Int l companies The Vanguard Group Capital International Blackrock Lazard Asset Management JP Morgan Asset Management The Vanguard Group Fisher Asset Management Qatar Investment Authority Baillie Gifford Brandes Investment Partners Skagen Oppenheimer Funds Temasek Lazard Asset Management JPMorgan Asset Management Genesis Investment Management Investors in international issuers are the same irrespective of the entry criteria or security type chosen by the issuer Investors are large and stable institutions who understand international issuers well Indian Story is well understood in London. London s global footprint provides access to institutional investors worldwide Listing on the LSE will access US investors without having to submit to US regulation or be exposed to class test actions in the US courts As London issuers, Indian corporates will have unimpeded access to Europe Sovereign wealth funds are regular investors in London listed companies Page 16

17 LSE - International Exchange of Choice for Indian Companies Main Market ATT Only Total No. of Companies Total Market Capitalization (USD) $3.5bn $92m $2.5bn $73.8bn $1.9bn $83.7bn $165.4bn Capital raised by Indian companies on London Stock Exchange since January 2010 (USD) $3.3bn Source: Bloomberg and LSE data October 2015 Page 17

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