Flip-Flops on India's Offshore Bond Sale Confounds Traders

(Bloomberg) -- Confusion over India's plans for a $10 billion overseas bond sale is getting worse with each passing day, frustrating investors.

Bonds dropped Thursday, after capping their best month in July in more than 2 1/2 years, after an official told reporters that the government hasn't yet decided whether it will issue an offshore bond this fiscal year ending in March. Another official said later in the day that consultations on the sale were on.

It was only on Monday that Finance Minister Nirmala Sitharaman was quoted by the Economic Times saying that she isn't rethinking the offshore plan. The report had led to bond prices recouping last week's losses triggered by the sudden departure of a bureaucrat handling the issuance and reports of opposition from the prime minister's office.

The flip-flops have left traders on tenterhooks as a delay in the issuance -- or cancellation -- means the government will end up selling more debt locally this fiscal year. The offshore sale was meant to shift part of a record 7.1 trillion rupees of planned federal borrowings abroad.

The fiscal second-half borrowing will be done in a non-disruptive manner, one of the officials told reporters in New Delhi, asking not to be identified citing rules. The size of the offshore sale is unlikely to be huge, according to another finance ministry official.

The government will stick to its budget announcement, the official said, citing Sitharaman's budget speech where she said that the government will raise a part of its planned domestic borrowings overseas in foreign currencies.

‘Confidence Signal'

“The confusion and uncertainty needs to be out of the way,” said Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co. in Mumbai. “Yields can jump abruptly 10-15 basis points if the government says that the overseas sale won't happen this fiscal year.”

Former Reserve Bank of India Governor Duvvuri Subbarao said the issuance “will signal to the world about India being confident of opening its economy.” “The fear and concern that strikes me is that this will become the thin end of the wedge once we see that it has become very successful,” he said on Friday.

While foreign investors haven't stopped buying Indian debt amidst the confusion, they “want clarity, clear communication and better visibility,” Sergey Dergachev, senior portfolio manager at Union Investment in Frankfurt, said by email last month.

--With assistance from Vrishti Beniwal, Shruti Srivastava, Nupur Acharya and Siddhartha Singh.

To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ravil Shirodkar, Karthikeyan Sundaram

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