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Accessing the Global Markets Through London London Stock Exchange Masala Bonds January 2017
LSE Group – Depth and Breadth
LSEG is a leading international open access financial market infrastructure group
LSE plc sits within LSEG as the UK Recognised Investment Exchange business.
Primary
Markets
Cash Equities
Listing and
Trading
Derivatives London Stock Exchange Derivatives IDEX IDEM
Fixed Income ORB OFIS MOT ExtraMOT
Post Trade CC&G Monte Titoli GlobeSettle
Information Unavista RNS SEDOL Real Time Data
Services
Technology Hosting and Connectivity X2M
Business
Academy Events &Studios
Services
2
Heart of the World’s Capital Markets
Equities Debt ETFs
2,300 500+ 13,400+ 210+ 1,300 300%
Listed companies International Debt securities listed International ETFs and ETPs Growth in
with aggregate companies with a on LSE Main Market. sovereign bonds listed in London European ETF
market value of $7 combined market Overall money raised from 28 different from 24 issuers trading volumes
trillion value of $3.7 exceeds $3.45 trillion countries in 8 in the past 5
trillion different currencies years
11 $914bn $338bn+ £256bn 10 43%
IPOs raising over Raised in last 10 Raised by sovereign, Total on-exchange RQFII ETFs listed Market share of
$1bn in London in years from 2005 regional and local turnover in 2015 on LSE since 2014 European ETF
the last 3 years. – 2015 governments giving investors trading
exposure to Chinese
A-shares directly.
3
The London
Proposition
4
The London Proposition – Snapshot
Global Financial Centres Index 20 Broad Capabilities Across Many Debt Markets and Currencies
Top 10 Financial Centres by GFCI 20 rating
Euro
795 794 US Dollar Green
High Yield
British Pound Bonds
752 Swedish Krona
748 Australian Dollar
734 Islamic Masala
720 719 718 716 Norwegian Krone
713 Finance Bonds
China Renminbi
Japanese Yen
Hong Kong Dollar
Canadian Dollar Dim Sum
Bonds Convertible
Mexican Peso and
Other Structured
ORB Debt
‘Other’ includes 32 different international
currencies across 225 bonds, raising a
combined £25.2bn
More International Equity Listings Than Any Other Exchange Close to 50% trading of ETF in Europe is done in London
3,000 50.0%
45.0% LSE
2,500 International Domestic 40.0%
35.0%
% of ETF trading
2,000 30.0%
25.0%
1,500 2247
1620 20.0% DB
1444
1,000 1949 15.0%
ENXT
10.0% B.Italiana
500 617 848 5.0% SIX
485 459 375 0.0%
0 162 88 52
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
LONDON NYSE NASDAQ SINGAPORE TORONTO HONG KONG
Source : Factset, GFCI 20
5
Benefits of Listing in London
Why consider a Listing on the LSE
• The UKLA and LSE are aware of the
• The UKLA has a worldwide • English is the common language for
challenging time frames under which
reputation as a fair, effective and virtually all Eurobond documentation.
issuers and their advisers have to
efficient regulator. Professional,
The prestige operate in the Eurobond market. Home to the
of a globally consistent, common
• By complying with its well respected efficient and • By listing in London, issuers can avoid
respected • The UKLA has a specialist Debt team language of
standards of regulation and fast any misunderstandings and delays,
exchange with primary responsibility of reviewing Eurobonds
supervision, an international company which might arise when Eurobonds
bond documentation. This ensures a are listed on an exchange where the
can enhance its standing within the
smooth and efficient vetting process with first language is not English.
global investment community.
strict turnaround timings.
• Listing in London provides the
• The listing and admission fees for opportunity for significant profile
Eurobonds are competitive and easy raising, including via market open
to calculate. ceremonies that draw international
Enhanced
Competitive media attention and political support.
company
costs – no • London is the only major listing • By having its debt securities traded on
profile and
annual fee venue not charging bond issuers an a highly visible and liquid market such
visibility
annual fee – particularly as London, an international company
advantageous for long maturity can make its name, products and
instruments. services more familiar to investors
worldwide.
• MTS, an LSEG group company, provides
the wholesale electronic trading system • London is the leading centre for
• London is a gateway not only to trading of international eurobonds.
for government bonds and has extensive
Europe, Middle East and Africa but Active
experience in running some of the largest
Tapping into also to the US, Asia and beyond. Efficient primary and
government bond markets globally.
a new electronic secondary
• MTS Cash serves the Government debt • London-based firms account for 60%
investor pool bond trading market
securities markets of 18 countries across of the primary market and 70% of the
• A London listing guarantees trading secondary market activity.
Europe, supports transparent price
maximum investor diversification.
discovery and provides a mutually
contributed pool of interdealer liquidity.
6
The Largest Investor Pool in the World
$2 trillion invested in international equity out of London
Equity AUM held in International Portfolios, by Metro Area (Q4 2015)*
Key Facts: • UK assets under management totalled a record £6.8
trillion in 2014, the second largest in the world. The
UK is also the leading European centre for
• London, more than any other financial centre, offers a management of hedge funds, sovereign wealth funds
long-standing globally oriented investor base and private equity funds.
1,987
• UK investors have diversified portfolios and are used • The UK accounts for 37% of global foreign exchange
to supporting companies’ international development trading. More US dollars are traded in the UK than in
the US.
• Institutional investors in the other major listing venues
tend to be more domestically focused • The UK is the leading derivative centre worldwide,
accounting for 39% of trading in OTC interest-rate
• Global investment portfolios ensure that investors derivatives
1,002 appropriately value businesses with a global profile
and aspirations • The UK has the leading share of trading in many
international financial markets such as cross border
bank lending (16%), international insurance premium
income (29%) and foreign exchange trading (37%).
575
375
304 287 275 263 251
194 188
89
London New York Oslo Toronto Paris Zurich Frankfurt Tokyo Amersterdam Stockholm HongKong Sydney
Source: Facset and LSE calculation, 2016
*international portfolios defined as investment in companies with a domicile different to the country of domicile of the portfolio manager
7
A Truly Global Investor Base
Global investors buy London-listed securities
- London has more international assets under management than any other global financial centre.
- Companies listing in London are able to access overseas investors through widely used and well understood capital raising routes.
Domicile of Investors in Selected Exchange’s Listed Securities Domicile of Investors in LSE-Listed Securities by Region
100%
ROW
ROW
90%
52%
ROW
80%
UK
70%
60%
30%
$1.8 trillion held in
Domestic
Domestic
50% North America
LSE-listed
40% Securities
13%
Domestic
30%
Europe
20%
10% 5%
Rest of World
0%
LSE NYSE NASDAQ
Domestic ROW
Source: Factset and London Stock Exchange calculation, January 2016
Domestic = North America for NYSE, NASDAQ
ROW = rest of world 8
Domestic = UK for LSE
Raise Your International Profile
London – Global Hub for Investors
• Listing in a global market such as London raises a company’s international
• LSE is home to the deepest global foreign exchange centre.
profile.
• LSE markets are supported by a network of 350 member firms from over 20
• High international regulatory standards ensure access to a globally oriented
countries*,
investor base
Selected Major Institutional Investors in London Listed Bonds
Americas Europe
• Capital Research • Blackrock
• Vanguard • Legal & General
• SSgA Funds • Scottish Widows
• Fidelity • Invesco
• Blackrock • M&G
• Thornburg Investment • Standard Life
• Artisan Partners • AXA Asia Pacific
• Alliance Bernstein • Societe Generale • State Administration of Foreign
• T. Rowe Price • Alecta Pension Exchange (China)
• Caisse de dépôt et • DWS Investment • GIC
placement du Québec • Swedbank Robur • BNY Mellon Hong Kong
• Itau Unibanco Brazil • Allianz Global Investors • Blackrock Japan
• BNP Paribas • Mitsubishi UFJ Trust
• Union Investment • Sumitomo Mitsui
Privatfonds GMBH • Aberdeen Asset Management
• Norges Bank Africa and Middle East Asia
• QIA • Hang Seng Investment
• P.I.C South Africa
• Kuwait Investment Authority
• Investec
• CCB Islamic Bank
• Abu Dhabi Investment Authority
-11
-10
10
11
London trading hours
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
GMT
Source: Factset
*LSEG, as of September 2015
9
London Stock Exchange Capital Markets Days
Format
Market Opening: Unique opportunity for all companies, dignitaries and sponsors are invited to
open London’s market at 08:00 on the day of the event. This is filmed and can be accessed by
• London Stock Exchange’s Capital international TV stations broadcasted in their relevant regions. A photographer is also present.
Markets Days facilitate face-to-face, Presentations: Welcome by a senior executive of the London Stock Exchange, giving an
overview of the market/sector. Summary of the IPO process by top City advisors and investors.
scheduled dialogue between Each company will have an opportunity to explain its investment story.
companies and institutional 1-2-1 meetings: Highly targeted individual meetings pre arranged by the Exchange. Each
company has its own private meeting room the entire day which is fully equipped with all AV
investors. This is usually done to capabilities.
highlight a specific region or sector Maximising exposure: Through the Exchange’s press team from organisations such as the
BBC, The Wall Street Journal, the Financial Times, CNBC & Sky News.
focus.
• Our central position within the
London financial markets offers an
unbiased arena in which to bring
together select groups of
companies with the most extensive
possible network of appropriate
potential investors.
10After Referendum Business As Usual
International Deals Continue
As a result of the recent EU Referendum and subsequent Brexit vote, uncertainty about London’s status as a financial centre
has arisen. The international community has responded and shown their commitment to London via a number of high profile
transaction announcements, thus proving London is open and ready for business
India’s HDFC Lists the First Japan’s SoftBank Announces £24bn GlaxoSmithKline invests £275m for
Masala Bond in London Takeover of UK’s ARM Holdings Three New UK Manufacturing Sites
• On 21st July, Housing Development Finance Corporation • UK technology firm ARM Holdings is to be bought by • Despite arguing against Brexit before the referendum,
(HDFC) issued the world’s first Masala bond issued by an Japan's Softbank for £24bn GSK believes the UK remains an attractive place for
Indian corporate making medicines – London currently accounts for nearly
• ARM Holdings designs microchips used in most 50% of GSK’s worldwide R&D and a third of it’s
• The issue was 4.3 times oversubscribed and paves the smartphones, including Apple and Samsung models, and manufacturing.
way for the opening of the Masala bond market globally to employs more than 3,000 people
support Indian company and infrastructure financing • The company recently announced plans to invest a further
• Softbank has previously acquired Vodafone's Japanese £275m into three drug manufacturing sites in Britain,
• Distribution: 86% taken by Asian investors and 14% by operations and the US telecoms company Sprint. The signalling its confidence in the country despite last
European investors; Institutional investors made up 82% $20bn deal was the biggest foreign acquisition by a month's vote to leave the European Union
and private banks 18% Japanese firm at the time
• "It is testament to our skilled UK workforce and the
• “This is a milestone transaction for HDFC. We have • The new deal will be funded by Softbank's own cash country’s leading position in life sciences that we are
achieved our objective of attracting a global pool of capital reserves and a long term loan from Japan's Mizuho Bank making these investments in advanced manufacturing
to diversify our borrowing profile, The positive investor here," said Chief Executive Andrew Witty
response towards this issuance reinforces the blue-chip • Masayoshi Son, chairman and chief executive of
positioning of HDFC, and establishes a significant Softbank, said: "This is one of the most important • Business minister Greg Clark said GSK's move was a
benchmark for Indian companies” said HDFC chairman acquisitions we have ever made, and I expect ARM to be clear vote of confidence in Britain and demonstrated that
Deepak Parekh. a key pillar of SoftBank's growth strategy going forward "there really is no place better in Europe to grow a
business"
11London Stock Exchange’s
Fixed Income Offering
12Global Home for Raising Fixed Income Capital
1217 …from 65 … raising over
Issuers.. countries £3.45 trillion
The London Stock Exchange is …via 13,400+
the global financing hub for fixed …in 37
Listed debt
income issuers currencies instruments
Bond Primary and Secondary Market Statistics by Region
3%
30%
Issuance Trading 70% Of global
70% secondary market
97% bond trading
takes place in
13% UK London
Amount Rest of World
Outstanding
2011
87%
Source: TheCityUK estimates (2011)
World Federation of Exchanges (2011)
13Centre of Global Fixed Income Trading
LSEG has developed Bonds Value Traded on Exchanges (USDm)
highly liquid and
transparent electronic
fixed income order books
that allow for both
primary and secondary 32,500
access and trading to
international investors
With changes to 22,000
regulation including +18% CAGR
(2001-2011)
MiFID II and the
associated pre- and post-
trade transparency 13,000
requirements, we
anticipate that demand 7,000
for credible secondary 5,500
market platform trading
for bonds will increase
2001 2002 2005 2008 2011 2015 *
Source: Bank for International Settlements; TheCityUK estimates (2011)
World Federation of Exchanges (2011)
* 2015 value estimated based on previous trend growth
14Cutting Edge Financial Products
Apart from standard issuance we are leading the way in new fixed income products
• Retail and wholesale markets, offering the
choice of trade reporting, end-of-day pricing
and continuous quoting • LSE’s PSM accommodates all types of debt
• Unique and comprehensive specialist securities including high yield bonds in any
Green offering for green bonds denomination under a wholesale regime
• Dedicated green segments High Yield
Bonds • The PSM is a global listing venue attracting
• Industry Affiliations: investment from many other locations in
• ICMA GBP Observer, Social Stock Europe, Asia, Latin America and Australia
Exchange, Climate Bonds Initiative, City of
London Green Finance Initiative
• LSE’s PSM accommodates all types of debt
• LSE is a key global venue for the issuance securities including convertible bonds in
of Sukuk any denomination under a wholesale regime
• There are over 20 banks in London Convertible
and • Many investors can only buy debt
Islamic providing Islamic financial services, more
than any other European country Structured instruments listed on a Recognised
Finance Investment Exchange. LSE is well
• Unique and comprehensive specialist Debt
offering for sukuk positioned to provide efficient and well-
regulated markets for both bond issuers
• Dedicated sukuk fixed income segments
and investors
• LSE’s flagship retail
market - both primary
• LSE is a key global venue for the issuance
issuance and secondary of Masala bonds
• LSE is a key global venue for the issuance trading of retail
Dim Sum of Dim Sum bonds
denominated bonds Masala • Listing venue for the world’s first Masala
ORB
Bonds • Unique and comprehensive dedicated Bonds bond from an Indian corporate
offering for Dim Sum bonds • Retail bonds can also
• Unique and comprehensive dedicated
be held in an ISA, which offering for Masala bonds
is a tax-free savings
account
15A Choice of Debt Markets
Main Market Professional Securities Market
Applicable UK
• Chapters 2 and 17 of UK Listing Rules • Chapter 4 of UK Listing Rules
Listing Rules
• At least two years trading records and independently
Financial Records audited accounts consistent with the International • Local GAAP can be used
Financial Reporting Standards (IFRS)
• No full prospectus required
Listing Documents • Full prospectus
• Listing Particulars adequate
Transferability • The debt securities subject to the listing must be freely transferable
Issue Size • The market capitalisation of the class of the debt securities to be listed must be at least £200,000
Listing of the Whole
• All debt securities of the same class should be listed
Debt Class
• Wholesale Bonds only, although retail denominated
Designation • Wholesale & Retail Bonds
bonds can be issued under the wholesale regime
16Listing & Admissions Process
17Smooth Listing Process
UK debt markets’ high standards ensure credibility amongst the global investor base. The
UK Listings Authority (UKLA) has a reputation for its a robust and balanced approach to
implementing the listing rules whilst maintaining efficiency of the listing process.
• Listing process is a two pronged approach between
LSE and UKLA Typical transaction timeline
Bond priced
• UKLA committed to efficient turn around times:
Total transaction takes between three to eight weeks
• Up to 4 clear working days after first
submission
• 2 clear working days** for subsequent Four working days Two days** Up to one week
submissions
UKLA
• UKLA checklist can be used by issuers prior to Listing Initial review Documentation Listing
submission London Application completed Approved and Effective
Listing Listing Granted
• One-off £2,000 UKLA Vetting fee is applied (no extra
annual or application fees) LSE
Application for Admission Admission Trading can
to Trading Granted Begin
N.B. This process applies to plain vanilla debt securities, redemption-linked securities, medium term note programmes, securitised derivatives and supplementary prospectuses/listing particulars for non-equity securities.
MTNs only require approval for the base prospectus with subsequent draw-down issues allowed at any time during 12 month period, subject to publication of Final Terms and Prospectus Supplement by 2pm the day before issuance
18
**Only if required due to additional comments from he UKLAPassporting a Prospectus
Easy process to dual list in London via passporting (when the bond prospectus is already approved in another EEA jurisdiction)
• Passporting involves a prospectus approved by the issuer's Home Competent authority in the EEA being accepted by another EEA member state as the basis of a
public offer or admission of securities to a regulated market.
• In this way, issuers with bonds listed elsewhere can gain a London listing quickly and efficiently.
For existing notes to be admitted to trading on the regulated market of the London For new notes to be issued under the existing programme to be admitted to trading
Stock Exchange, the issuer would have to undertake the following steps on the regulated market of the London Stock Exchange, the issuer would have to
Action Comment undertake the following steps:
Step 1 Obtain a passport from the existing The existing EEA Competent Authority Action Comment
EEA Competent Authority by has three working days to notify the Step 1 Send a notification request form in If this has already been done for
submitting a Notification Request UKLA that it has approved the base relation to the base prospectus to previous admission, there is no need to
Form. prospectus. Once this has occurred, the the existing EEA Competent do it a second time.
issuer can contact the UKLA to apply Authority, who will inform the UKLA
for the notes to be listed in the UK.
Step 2 Send an application for admission Note that the application for admission
Step 2 Submit the security to the UKLA of securities form and a listing rules of securities form has to be sent for
Official List alongside the passport checklist to the UKLA2. each new series of notes, the listing
and make some small additions to rules checklist only needs to be sent the
the document, for example confirm first time an issuer is applying to the
the planned listing on London Stock official list of the UKLA.
Exchange in the prospectus.
Step 3 Apply to the London Stock Ensure that the relevant final term
Step 3 Apply to the London Stock Exchange for admission to trading. specifies, that the notes will be admitted
Exchange for admission to trading. This involves submitting a to trading in London. That is the only
This involves submitting a completed Form 11 and an drafting difference.
completed Form 11 and an electronic copy of the relevant
electronic copy of the relevant prospectus.
prospectus.
1Form 1: http://www.londonstockexchange.com/companies-and-advisors/main-market/documents/publications.htm
2UKLA Checklist: https://www.fca.org.uk/markets/ukla/forms#listing-applications
19Admission Process For admission, the documents that we need are1: • Signed Form 1 with EU sanctions complete • Signed Board Minutes • Prospectus • UKLA approved letter • Confirmation of the note being issued (usually the day before) Also as soon as possible in the admission process, it is necessary to arrange for the creation of the relevant trading codes: ISIN/SEDOL ISINs are normally allocated by the country of domicile of the issuer. London Stock Exchange is then responsible for allocating a SEDOL code, which is a unique instrument identifier. Email the Pricing Supplement(s) to smfnewissues@lseg.com and allow 48 hours for these to be assigned. TIDM A Tradable Instrument Display Mnemonic (TIDM) is the three or four character identifier specific to London Stock Exchange. Issuers may request a specific TIDM, which will be issued, provided it is not already in use or reserved. Once reserved, these are held for a period of six months. Requests should be made to the Admissions Team by emailing the issuer name and the instrument name, making it clear that it is a TIDM request, to admissions@lseg.com 1Note that these documents can initially be in draft form (i.e Form 1 not signed and prospectus not yet approved – but it will need to be a workable document (i.e have most of the key information included)). All final documentation needs to be with LSE Admissions by 4pm the day before admission. 20
International Cost Competitiveness
Competitive Fee Structure:
• LSE fees are calculated on a sliding scale, based on issue size and type of issue.
• No fee is payable for setting up an MTN program.
• No annual fee is payable in respect of debt securities on the London Stock Exchange’s markets
Eurobonds & International Issuers Issuers under debt issuance programs
Face Value (£m) Fee (£) Face Value (£m) Fee (£)
Greater than Less than
Greater than Less than or equal to
or equal to
0 25 300
0 50 2,500
25 50 1,750
50 100 4,000 50 100 2,700
100 and above 4,200 100 500 3,600
500 above 3,650
21Masala Bonds
22India – UK Finance Partnership
“We will work together with the British “It’s a real opportunity to open a new chapter in the “We will also increasingly raise funds in
Government, industry, and the financial market relationship between our two countries.” London’s financial market. I am pleased
to deepen our relationship and harness that David Cameron that we will issue a railways rupee bond
interest in India’s infrastructure. Very soon, in London stock market. This is – for
these bonds will become strong instruments for “Today, we have outlined a bold and ambitious vision for this is where the journey of Indian
engagement between our financial markets.” our strategic partnership, and the decisions we have Railways had begun.”
Narendra Modi taken today reflect our firm commitment to pursue it and Narendra Modi
the confidence to achieve it. Indeed, the outcomes today
“रूपी ब डॉं अपने आप में भारत की आर्थिक have shown that we have already taken our relationship
to a new level.”
सॉंपन्नता का एक महत्वपर्
ू ि ममश्रर् है और Narendra Modi
हहॉंदस्
ु तान के हर नागररक को इसको गौरव के रूप
में दे खना चाहहए और इसको उजागर करना
चाहहए, तभी तो भारत की ताक़त बढ़ती है “
Narendra Modi
Source: Joint press release UK-India Summit, 12 November 2015, https://www.gov.uk/
23LSEG at the heart of India-UK EFD
13 March 2015, international investors roundtable, LSE Roundtable with Railways Minister, 30 October 2015
London Stock Exchange has more Indian “Our clear aspiration is for the City of London to become India’s
companies listed on our equity and debt markets international destination of choice to raise funds, particularly to
than any other international market and provides finance India’s ambitious infrastructure plans. Our mantra is: Make in
cutting edge technology to some of India’s India, Finance in the UK”!
leading exchanges. India’s most dynamic Alok Sharma, Minister for Asia and the Pacific, speaking at the
companies have access to the world’s largest Global Investor, India October 2016
pool of institutional investment capital here in
London.”
Xavier Rolet, CEO, LSEG
18 Nov 2014, IFC Market Open
“London Stock Exchange is one of the premier hubs “Strengthening the economic and financial links between India and London Stock Exchange
globally for any financial activity” the UK is a key priority for the government, and a stable and
Arun Jaitley, Honourable Minister of Finance 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
24Masala Bonds Key Milestones
London Stock Exchange is the global hub for Masala Bond issuance.
March 2016
November 2014 World’s Longest Dated
IFC commits $1.4 billion November 2015 15-year Masala bond
investment in India and Reserve Bank August 2016
issues the First Masala of India revises the World’s First Green
bond listed in London to External Commercial Masala bond by an
support Axis Bank Borrowing framework June 2016 Indian quasi-sovereign
domestic infrastructure allowing the issuance of LSE hosts the inaugural issuer
bond INR denominated bonds Green Infrastructure
Investment Coalition India
Forum
2007 2014 2015 2016
April 2007 April 2015 August 2015
July 2016 September 2016
First INR-linked bond listed IFC issues Rs 16 billion, World’s First Green
World’s First Masala World’s First Masala
in London the largest ever Rupee Masala bond invested
bond by an Indian bond by a foreign
denominated bond back-to-back in Yes
corporate government entity
issued outside India Bank’s domestic Green
INR bond
25June 2016 India Forum
Hosted by the London stock Exchange, the inaugural India Forum of the Green Infrastructure Investment Coalition (GIIC)
brought together European institutional investors, Indian green infrastructure developers and financiers, development banks
and perspectives from both governments.
The aim of the event was to allow investors to understand the various ways of gaining exposure
to this quickly growing asset class.
The Forum covered India’s goals, policy measures being implemented, and investment
opportunities becoming available.
We invited participants to present 5 year pipelines of green investment opportunities, including
bonds and equity, with ticket sizes of $100 million and over.
India has huge green infrastructure plans: a target of 175 GW of renewables by 2022, a ramp-
up of rail transport, energy efficiency projects and development of 100 “smart cities”.
Speakers included:
• Sir Roger Gifford, Head of London’s Climate Finance Initiative
• Dr Rathin Roy, Director NIPFP
• Alok Sharma, MP UK Government Infrastructure Envoy
• Pierre Ducret, Special Advisor on Climate Change COP22
• Ajungla Jamir, First Secretary at India High Commissioner
• Sean Kidney, CEO Climate Bonds
• Abhay L. Bongirwar, Executive Director IDBI
26April 2016 Visit of Minister Piyush Goyal
“Minister of Power and Coal Piyush Goyal, who is on a two-day visit to the UK, visited the London Stock Exchange. During the visit,
Goyal met officials from Natgrid and UK Power Network and explained about his plans and vision to increase the power generation
in India and renewable energy scale up plan has been drawn up to 2022. According to sources, Goyal emphasised the need for the
developed world to show its commitment towards climate change by putting money in climate finance.”
Business Standard, 21 April 2016
“In an attempt to raise resources for India’s ambitious green energy programme, state-run firms, such as NTPC Ltd, Neyveli Lignite
Corp. Ltd, Power Finance Corp. Ltd (PFC), Rural Electrification Corp. Ltd (REC) and PTC India Ltd, plan to issue masala bonds to
raise $1 billion, according to a government statement released on Wednesday.”
VCCIRCLE, 20 April 2016
27London 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 July 2016, London Stock Exchange
“IFC issued the bonds in welcomed the world’s first Masala "London Stock Exchange
London to leverage the bond issued by an Indian corporate. continues to distinguish itself
city’s standing as a The landmark INR30bn 37 month bond by offering a wide range of
premier financial centre. with a yield of 8.33% from Housing financial instruments and
The vast majority of Development Finance Corp (HDFC), enjoys unshakable trust from
investors are European was 4.3 times oversubscribed and international investors.”
insurance companies.” , paves the way for the opening of the Chairman Deepak Parekh,
Nov 2014, IFC press Masala bond market globally to
HDFC press release for
release for INR 10bn, support Indian company and
10year 6.3% bond infrastructure financing
INR30bn 37month 8.33% bond
28LSEG’s India Partnerships
Bharti Airtel Zyfin & Sun Global Yes Bank SBI-LSEG IRFC
MoU to foster joint
Listing the world’s first India collaborations on bond and FTSE Russell and State Bank Issuance of offshore Rupee
Issuance of maiden sterling
Description fixed income ETF on London equity issuance in London, of India partner to create denominated bonds in
bond in London
Stock Exchange with a strong focus on Green Indian Bond Index Series. London
Infrastructure Finance
Up to $550m Green bonds
Size £500m -- -- --
$1bn equity
“The bond issue will help Bharti “LSE is the broadest ETF “Both financial institutions will “State Bank of India (SBI), “We are set to launch a railway
extend maturities and diversify market in Europe. This ETF will leverage their complementary India’s largest Commercial bond in London. It is
investor base on its debt give international investors strengths to facilitate access to bank, has teamed up with FTSE appropriate as the journey of
portfolio” access to the Indian fixed capital raising in London and Russell to launch the FTSE Indian Railways started in he
income market, which is worth India for Indian entities and will TMX SBI India Bond Index. This UK”
USD 1.3 trillion and is a vital work jointly on the development index addresses the long felt
source of finance for the of a wide range of new interest of investors to have a
infrastructure sector” products. Through this credible benchmark for Indian
Announcement collaboration both parties also debt.”
demonstrate their commitment
to the promotion of products
and platforms supporting the
use of Green Finance”
29The Current Status of the Masala Bond
Market: London Stock Exchange listings
33 14 …raising 6
…from 6
Masala bonds Masala bonds $2.19bn New Masala bonds
issuers…
listed historically Currently listed… in total listed in 2016 YTD
Maturities Trading Coupons
Maturities showing issuance A range of secondary trading Financing possible at attractive
volumes across tenors markets available issuance yields
Issuance by Maturity (%) 6.91%
6.76%
6%
Order book trading 6.59%
14%Masala Bond Case Studies
31Recent Masala Issuance
British Columbia NTPC HDFC Axis Bank EBRD IFC
21 March 2016 /
Issue Date 09 September 2016 10 August 2016 21 July 2016 01 June 2016 4 March 2016 10 Aug 2015 /
18 Nov 2014
INR 2bn / INR
Transaction Issue Size INR 5 bn INR 20 bn INR 30 bn USD500mn INR 5bn 3.15bn / INR
Details 10bn
7.1% / 6.45% /
Coupon 6.6% 7.375% 7.875% 2.875% 6.4%
6.3%
15 year / 5 year
Maturity 40 months 5 year 37 months 5 year 3 year
/ 10 year
Issuer
Rating AAA / Aaa BBB-(emr)* AAA/A1+** Baa3 / BBB- AAA / Aaa AAA / Aaa
Profile
*Fitch emerging markets bond rating **CRISIL and ICRA ratings
32Distribution by Investor
NTPC lists world’s first green Masala bond by an Indian issuer on
Banks 15%
London Stock Exchange
Fund
Company Details Transaction Details managers/insurers/ 80%
sovereign wealth funds
Company NTPC Ltd Issue Date 10 Aug 2016
Private Banks 5%
Issue Size INR 20 billion
Rating BBB-(emr)*
Yield at issue 7.48% Geographical Distribution
Sector Utilities
Coupon 7.375% Asia 70%
Market PSM Maturity 5 years Europe 30%
"We are keen to tap a new and international investor base
Company profile Debt issuance story for our renewable energy programme and access offshore
financing without the associated exchange risks, which we
can achieve through this issuance on London Stock
NTPC is India’s largest power utility company. The The proceeds of the bond will be invested to Exchange.
company’s headquarters are in New Delhi and its support wind and solar projects complementing
core business involves generating and selling India’s government ambition to generate 175GW We are also grateful to London stock Exchange for guiding
electricity to state-owned power distribution of renewable energy by 2022. us through the process of Listing and attracting
international investors into the first ever Green Masala bond
companies and State Electricity Boards in India. The deal was oversubscribed, with books in offering from India"
It was founded by Government of India in 1975 excess of INR 29 bn from more than 60 accounts. Kulamani Biswal, Director (Finance), NTPC
and in May 2010 was conferred Maharatna status. The green certification gave NTPC a global boost "The investor reach gets enhanced. The green investors in
NTPC established a Green Bond Framework and, as a result, better pricing. Notable was Europe and the US have invested in this issue in addition to
the normal investor"
which has been independently certified by Climate NTPC's investor diversification internationally and
Shashikant Rathi, Head of Treasury and Debt Capital Markets,
Bonds Initiative, a partner of London Stock the company’s ability to attract participation by Axis Bank (Joint Lead)
Exchange and adheres to the ICMA Green Bond dedicated green bond funds from Germany and "From an issuer perspective, it made more sense to do a
Principles. Denmark into the deal. Green Masala instead of just a Masala because there is
Post issuance, KPMG will provide assurance that Joint Leads: Axis Bank Ltd, Hong Kong & additional liquidity provided by dedicated green investors
and they can get pricing traction from the additional
the nominated projects are in alignment with the Shanghai Banking Corporation, Standard demand,"
company’s Green Bond Framework. Chartered Hong Kong, Mitsubishi UFJ Financial. Jujhar Singh, Co-head of HY, Standard Chartered (Joint Lead)
*Fitch emerging markets bond rating
33HDFC is first ever Indian corporate to list Masala bond, chooses
London Stock Exchange for landmark issuance
Company Details Transaction Details Distribution by Investor
Housing Asset Managers 81%
Issue Date 21 Jul 2016
Company Development Finance
Private Banks 18%
Corporation (HDFC) Issue Size INR 30 billion
Banks 1%
Rating AAA/A1+* Coupon 7.875%
Sector Financials Yield at issue 8.33%
Maturity 37 months
Geographical Distribution
Market Main Market
Asia 86%
Company profile Debt issuance story
Europe 14%
HDFC is a leading provider of Housing Represents the world’s first Masala bond
Finance in India. issued by an Indian corporate. “London Stock Exchange continues to
distinguish itself by offering a wide range of
The company also has a presence in The issue was 4.3 times oversubscribed financial instruments and enjoys unshakable
banking, life and general insurance, asset reflecting strong investor sentiment and paves trust from international investors.
management, venture capital and education the way for the opening of the Masala bond
loans. market globally to support Indian company This is a milestone transaction for HDFC. We
and infrastructure financing. have achieved our objective of attracting a
Founded in 1977 as the first specialised global pool of capital to diversify our borrowing
mortgage company in India. The final order book was INR 86.73 billion profile. The positive investor response towards
from 48 accounts with final allocations being this issuance reinforces the blue-chip
HDFC’s distribution network spans 396 well-diversified. positioning of HDFC, and establishes a
outlets which cater to approximately 2,400 significant benchmark for Indian companies”
towns and cities spread across India. Joint Leads: Axis Bank Ltd, Credit Suisse and
Nomura. Deepak Parekh, Chairman, HDFC
*S&P, Moody and Fitch ratings unavailable, ratings shown provided by CRISIL and ICRA
34World’s first Masala Bond by a foreign government entity on LSE
Issuer Details Transaction Details Geographical Distribution
Company Province of British Columbia Issue Date 09 Sep 2016 Americas 56%
Rating AAA / Aaa Issue Size INR 5 billion EMEA 30%
Sector Government Coupon 6.6% Asia 14%
Market Main Market Maturity 40 months
Issuer profile Debt issuance story
The Canadian Province of British Columbia The British Columbia bond raised INR 5 billion
becomes the first foreign government entity to issue (c. $75 million) with 6.62% semi-annual yield,
a Masala bond, choosing London for its listing. securing high quality investor support from
across Europe, Asia and America.
With this issue, the Province continues its The issue was more than 3 times
reputation as an innovator and leader amongst its oversubscribed.
AAA-rated peers in diversifying sources of funding.
The proceeds from the bond will be put to work
“The Masala bond issuance offers British Columbia in India’s housing industry by HDFC, one of “This bold move by the Government of B.C.,
a means to become well-positioned to profile our India’s leading banking and financial services to be the first sovereign government to issue
confidence in the outlook for India, and to companies. a Masala bond, highlights the confidence that B.C.
participate in the internationalization of the Rupee and Canada are showing in the Indian economy.”
and India’s economy.” , British Columbia Minister of Joint leads: HSBC and TD Securities. Nadir Patel, High Commissioner of Canada to India
Finance Michael de Jong.
Source: Bloomberg, GlobalCapital, LSEG database, September 2016
35India’s first internationally listed certified green bond
Company Details Transaction Details Distribution by Investor
Company Axis Bank Dubai Issue Date 01 Jun 2016 Banks 30%
Rating Baa3/BBB- Issue Size USD 500 million Asset Managers 55%
Sector Financials Coupon 2.875% Private Banks 5%
Market Main Market Yield at issue 2.998% Sovereign wealth
10%
funds/pension funds
Maturity 5 years
Company profile Debt issuance story
Axis Bank is India’s third largest private bank. The proceeds of the bond will be invested in Geographical Distribution
“Axis Bank launched and successfully green energy, transportation and infrastructure
completed the first certified Green Bond issue, projects, reinforcing India’s commitment to Asia 48%
the issue we are pleased to list on the London produce 175,000 MW of renewable power by
Stock Exchange today. The encouraging 2022. Europe 25%
response to this issue is reflective of the The deal was 2.2 times oversubscribed. U.S. 16%
keenness of global investors to promote and Lowest coupon ever for a 5-year USD bond by
support a sustainable environment and also any Indian private sector issuer. Middle East 11%
acknowledge Axis's credibility in this space. First ever USD green and 144A bond by an
The ease of the listing process and breadth of Indian private sector company with 21% of the “When an Indian company lists securities at
investors seen in this bond issuance investor base being “green” investors. LSE, it gets direct access to many European and
demonstrates the role London Stock Exchange Joint Leads: Axis Bank SGP, BAML, Citigroup Scandinavian investors. The ease of listing too
can play in supporting India's financing needs.” Global Markets SGP, Credit Agricole CIB HK, attracts many issuers. Besides, LSE remains a
Managing Director & CEO of Axis Bank, HSBC, JP Morgan Securities Plc, Standard financial hub even after Brexit referendum”
Shikha Sharma Chartered Bank. Sidharth Rath, Group Executive, Axis Bank
36Using offshore rupee bond issuance as part of a multi-
currency EUR 35bn GMTN Programme
Company Details Transaction Details
European Bank of Reconstruction
Company Issue Date 4 Mar 2016
and Development (EBRD)
Rating AAA / Aaa Issue Size INR 5 billion
Sector Supranational Yield at issue 6.4%
Market Main Market Maturity 3 years
Company profile Debt issuance story
EBRD is a multilateral developmental The European Bank for Reconstruction and
international financial institution founded in 1991 Development has been a key issuer of Indian
that uses investments as a tool to build market Rupee denominated bonds in London.
economies. Initially focused on the countries of
the former Eastern Bloc it expanded to support EBRD has raised more than $729m equivalent
development in 30 countries from central Europe on the London market, through six INR
to central Asia. denominated issues with tenors of one, two,
The EBRD is owned by 65 countries and two three and four years.
intergovernmental institutions (EU and EIB). It
maintains a close political dialogue with Sole arranger: HSBC.
governments, authorities and representatives of
civil society and works in cooperation with
international organisations such as the OECD,
the IMF, the World Bank and UN specialised
agencies.
37• Inter-American Development Bank was the first ISIN Issue Date Maturity Tenor Cpn INRbn
issuer of an Indian Rupee denominated bond in
London in 2007. This was the first ever non-
deliverable Indian rupee-denominated bond, cash XS1016451699 Jan-14 Jul-15 1.5 7.125% 1.00
settled in dollars using prices in the non
deliverable forward market for Indian rupees.
XS1101962618 Sep-14 Sep-16 2.0 6.100% 4.00
• Over the years, IDB has raised more than $275m
equivalent on LSE, through 6 INR denominated
issues with tenors of one, two, three and ten XS0882569568 Feb-13 Jul-15 2.5 5.000% 2.00
years.
• The IDB, established in 1959, is a supranational XS1103713654 Sep-14 Sep-17 3.0 6.000% 8.50
financial institution that uses the resources it
raises in capital markets to support programs that
promote development and economic growth while
XS0573957296 Jan-11 Jan-14 3.0 4.750% 17.00
respecting and protecting the environment.
• Key initiatives for the progress of its borrowing
member countries include the modernization of XS0842193475 Oct-12 Oct-15 3.0 4.750% 1.04
infrastructure, development of alternative energy
sources, and universal access to clean water and
sanitation. XS0495010562 Mar-10 Mar-14 4.0 3.000% 2.00
XS0299574953 May-07 May-17 10.0 8.250% 1.50
38• In 2014, IFC moved its Treasury function to London.
• In November 2014 International Finance Corporation issued a ten year, 6.3% triple-A rated masala bond,
raising Rs 10 billion and paved the way to increase foreign investment in India, mobilising international
capital markets to support a subsequent infrastructure bond issuance by Axis Bank.
• In April 2015, IFC issued a three-and-a-half year, 6.45% bond that raised Rs 16 billion – the largest ever
Rupee denominated bond issued outside India.
• The program is reflective of the strong partnership between India and IFC. In 2014 IFC committed $1.4 billion
in India along the strategic priorities of promoting inclusive growth, particularly in India’s low income states,
addressing climate change, and supporting economic integration.
• “The stats for trades executed in London and Singapore since the hubs came online speak for themselves: Of
the 150 trades we’ve done this FY, 60% have been executed in London, 20% in Singapore and 20% in DC.”
Ben Powell, Head of Funding, IFC
39IFC had been issuing in the offshore markets at approximately 90 -190 bps below the Government of India onshore yield (at
time of issuance). Through the Masala bond program, IFC has been able to offer clients in India attractive levels of funding
and has invested INR 55.1Bn ($860mm equivalent) in the Indian private sector.
IFC Offshore Rupee Yield Curve
8.50%
8.00%
7.50%
7.00%
Yield
6.50%
6.00%
5.50%
5.00%
3 5 7 9 11 13 15
Maturity (years)
IFC Offshore bond level
40Using offshore rupee bond issuance to finance private
sector development in India
Company Details Transaction Details
International Finance Corporation
Company Issue Date 21 Mar 2016
(part of World Bank Group)
Rating AAA / Aaa Issue Size INR 2 billion
Sector Supranational Yield at issue 7.1%
Market Main Market Maturity 15 years
Company profile Debt issuance story
IFC is one of the world’s largest financiers of Proceeds of the bonds will be used to advance
climate-smart projects for developing countries, private sector development in India.
investing about $11 billion in long-term financing
over the last decade for renewable power, It marks the longest-dated offshore rupee bond to
energy efficiency, sustainable agriculture, green be issued globally.
buildings and private sector adaptation to climate
change. The latest 15-year bonds mark the latest step in
IFC’s efforts to extend the yield curve and set a
“IFC’s 15-year masala bond demonstrated long- pricing benchmark for future issuances with
term investor confidence in India’s growth,” said similar maturities. IFC has previously issued
Navtej Sarna, Indian High Commissioner to the Masala bonds in maturities of three, five, seven
United Kingdom. “Innovative financing and ten years.
mechanisms like IFC’s Masala program are
critical to mobilize long-term funding for India’s Sole arranger: JP Morgan.
infrastructure expansion.”
Source: IFC press release, LSEG database, March 2016
41Using Green offshore rupee bond issuance to finance
Indian infrastructure
Company Details Transaction Details
International Finance Corporation
Company Issue Date 10 Aug 2015
(part of World Bank Group)
Rating AAA/Aaa Issue Size INR 3.15 billion
Sector Supranational Yield at issue 6.45%
Market Main Market Maturity 5 years
Company profile Debt issuance story
IFC is one of the world’s largest financiers of Proceeds from the offering used to finance a
climate-smart projects for developing countries, green bond issued by Yes Bank, one of India’s
investing about $11 billion in long-term financing largest commercial banks. Yes Bank invested the
over the last decade for renewable power, proceeds of its bond in renewable energy and
energy efficiency, sustainable agriculture, green energy efficiency projects, mainly in the solar and
buildings and private sector adaptation to climate wind sectors.
change.
“Addressing climate change is a priority for IFC in Under its $3 billion offshore rupee Masala bond
India. IFC’s green Masala bond demonstrates program, IFC has issued bonds worth over 103
the powerful role of capital markets in mobilizing billion rupees ($1.66 billion) in a range of tenors,
savings for climate finance—and a listing in building a triple-A yield curve and attracting new
London allows us to attract the widest possible investors to the London offshore rupee market.
range of international investors. Adding the rupee
as a new green bond currency also supports our Sole arranger: JP Morgan.
goals to strengthen this important asset class.”
Source: IFC press release, LSEG database, August 2015
42Using offshore rupee bond issuance to finance Indian
infrastructure
Company Details Transaction Details
International Finance Corporation Issue Date 18 Nov 2014
Company
(part of World Bank Group)
Issue Size INR 10 billion
Rating AAA / Aaa
Sector Supranational Yield at issue 6.3%
Market Main Market Maturity 10 years
Company profile Debt issuance story
IFC, a member of the World Bank Group, was The bonds were priced 200bps inside equivalent
established in 1956 and it’s owned 184 member bonds issued by the Indian Government.
countries. It finances and provides advice for private
sector ventures and projects in developing countries The bonds’ principal amounts are linked to the
in partnership with local private entities. Indian rupee exchange rate. U.S. dollar proceeds
from the bonds will be converted to rupees in the
IFC is the largest global development institution domestic spot exchange market.
focused exclusively on the private sector in
developing countries. Vast majority of investors were European
insurance companies.
IFC’s mission is to allow companies and financial
institutions in emerging markets to create jobs, Proceeds from the offering used to support an
generate tax revenues, improve corporate infrastructure bond issuance by Axis Bank.
governance and environmental performance, and
contribute to their local communities. Sole arranger: JP Morgan.
Source: IFC press release, LSEG database, November 2014
43Appendix
(general slides)
44Main Market
Description
Criteria Main Market
Flagship Market: The London Stock Exchange’s Main Market is the world’s
most international market for the admission and trading of equity, debt and
Security type Fixed Income other securities, providing access to Europe’s deepest capital pool
Located at the heart of the world’s leading financial centre: The ideal
Official list status Listed
home to over 2,600 debt issuers from 60 countries, including many of the
world’s largest, most successful and most dynamic companies
Regulated EU Regulated
High Profile Listing: Exposes debt securities to a wide audience of financial
market participants, boosting the profile of the listing
Sponsor / Nomad Not Required
High regulatory standards: Underpinned by London’s balanced and
Corporate governance A Code globally-respected standards of regulation and corporate governance, the
Main Market represents a badge of quality for every company admitted to and
traded on it and an aspiration for many companies worldwide
Regulatory supervision UKLA
Broad range of eligible investors: The Main Market’s status as a listed and
Legislation LR/PD/TD/MAR/A&Ds regulated market offers flexibility both to issuers and holders of debt finance.
Its focus, therefore, is on the broadest range of institutional and retail
investors
Types of companies Large multinationals
Liquidity: Offers a number of secondary market order-book solutions while
Debt issuers seeking high profile providing access to London’s deep pool of international eurobond liquidity
Premise
listing
Cost saving: Offers cost savings as London is the only major European
Eligible investors Professional and retail listing venue with no annual fees to debt issuers
45Professional Securities Market
Description
Criteria PSM
Lighter Regulation: Outside scope of EU Prospectus and Transparency
Directives
Security type Fixed Income
No EU Passport: Designed to meet financing needs of issuers who do not
Official list status Listed require EU passport
Alternative Accounting Standards: Offers alternative for issuers not wishing
Regulated MTF
to prepare financial information to IFRS, and ability to report under national
GAAP
Sponsor / Nomad Not Required
Lower Denomination requirements: Distinction between wholesale and
Corporate governance Domestic retail does not apply, which allows securities to be issued in denominations
lower than €100K but under the wholesale regime
Regulatory supervision UKLA
Lower disclosure requirements: Offers full listed status but with lower levels
of disclosure and continuing obligations than what would be required on EU-
Legislation LR/LP/MAR/A&Ds
Regulated Main Market
Types of companies Emerging Markets Liquidity: Offers a number of secondary market order-book solutions while
providing access to London’s deep pool of international eurobond liquidity
Premise Debt issuers using local GAAP
Cost saving: Offers cost savings as London is the only major European
Eligible investors Professional only listing venue with no annual fees to debt issuers
46UKLA Listing Requirements Checklist
LR 2
Required by Rule Description
LR17.2.1
2.2.1 (1) Applicant Duly incorporated The applicant must be validly established according to the relevant laws of its place
2.2.1 (2) Conformity with constitution The applicant must be operating in conformity with its constitution
2.2.2 (1) Conforms with law of place of constitution Securities must conform with the law of the applicant’s place
2.2.2 (2) Duly authorised Securities must be authorised according to the applicant’s constitution
2.2.2 (3) Statutory and other consents Securities must have necessary statutory or other consent
Admitted on Recognised Investment
2.2.3 Securities must be admitted to trading on a RIE market for listed securities
Exchange (RIE)
2.2.4 (1) Freely transferable The listed securities must be freely transferable
2.2.7 (1) Minimum market capitalisation The expected aggregate amount value of the securities must be at least £ 200,000
If no securities of that class are already listed, the new securities class must relate to all
2.2.9 (1) Whole class to be listed
securities of that class issued or proposed to be issued
2.2.10 (2)(a) Prospectus approved by FCA and published A prospectus must be approved by the FCA
Other EEA is Home Member State for the The relevant competent authority must supply the FCA with a certificate of approval, a
2.2.10 (2)(b)
securities copy of the prospectus as approved and a translation of the summary of the prospectus.
2.2.11 (2) Listing Particulars approved Listing particulars for the securities must have been approved by the FCA
Convertible securities may be admitted to listing only if the securities into which they are
2.2.12 (1) Convertible into listed securities
convertible are listed securities
Convertible securities may be admitted to listing only if the securities into which they are
Convertible into recognised market
2.2.12 (2) convertible are securities listed on a regulated, regularly operating, recognised open
securities
market
Source: UKLA website
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