The Shanghai-headquartered BRICS lender, New Development Bank (NDB), will look to raise funds through a masala bond issue in the second half of the year, KV Kamath, president of the bank, told BloombergQuint in an interview.
"Last year, we raised money in the renminbi bond market through an onshore green bond. That was roughly $500 million. This year, in the second half of the year, we will look at doing a masala bond issue," said Kamath. The size of the issue could be between $300-500 million, he added.
The NDB prefers to raise local currency funds in the overseas market because of the tremendous volatility in currency markets, Kamath explained, while adding that offshore issues are preferred over onshore ones to avoid the risk of crowding out local borrowers.
The bank signed its first project in India on Thursday and will lend $350 million to a Madhya Pradesh district roads project. The bank lent out $1.5 billion in 2016 and is targeting to lend approximately $2.5 billion in 2017.
First project to be financed by the NDB in India is MP Major District Roads Upgrade Project & will be implemented by MP Road Dev. Corp Ltd.
The multilateral development bank was established by the five BRICS (Brazil, Russia, India, China, South Africa) economies to challenge the dominance of developed countries in providing international finance. The initial authorised capital of the bank was $100 billion, divided in one million shares of $100,000 each. This was equally distributed among the founding members, according to information on the BRICS website.
In India, the NDB will focus on sustainable infrastructure projects in keeping with its mandate. While the initial set of investments will be made in sovereign guaranteed projects, by the end of the year the NDB may also look at lending to private projects.
The NDB has also had conversations with the government on a possible investment in the National Infrastructure Investment Fund (NIIF) - a government of India fund that hopes to combine sovereign and private funds to develop local infrastructure.
"We have had several discussions with them. ... I would encourage the setting up of the NIIF as it has been conceptualised by getting in partners. It will be very interested to look at what are the opportunities," said Kamath.
Kamath, a career banker who headed leading Indian private sector bank, ICICI Bank Ltd., for many years, was appointed as the first president of the NDB in 2015. In response to a question on financial sector stress in India, Kamath said that while the size of the problem has been recognised, resolution and availability of capital remains a challenge.
"That (resolution) has to be done at speed. Because you keep an asset which is productive for too long, you are doing more harm. So you need to put that asset back on track," said Kamath. I would think that whatever haircut needs to be taken has already been provided for by the banks, said Kamath adding that in that case not much incremental provisioning will be needed.
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