The Telegraph
Since 1st March, 1999
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Debt swap to finance forex loan repayment

Mumbai, Feb. 24: The Centre will privately place two tranches of government securities worth Rs 13,000 crore with the Reserve Bank of India (RBI) to raise forex loans that will help it prepay some of the money it borrowed from Asian Development Bank (ADB) and World Bank.

The step follows a decision to repay a chunk of the foreign currency loans to these agencies early, and signals the government’s intent to use its swelling foreign exchange kitty and make the best of soft rates at home.

According to the central bank, the government will prepay foreign currency loans of $ 1.30 billion taken from ADB and about $ 1.67 billion raised from the World Bank.

Explaining the method, the Reserve Bank said it will lend the government foreign currency required to repay the loans, at current exchange rates. This foreign debt will be swapped for domestic loans of Rs 13,000 crore — to be placed privately with the RBI on February 24.

The new issue will comprise two new securities: a 6.72 per cent government stock 2014 for an aggregate amount of Rs 5,500 crore and a 6.57 per cent government stock 2011 for an aggregate amount of Rs 7,500 crore.

“Any residual requirement of rupees will be met from the government’s cash holding. The date of repayment of the external loans will be February 24, 2003 and February 27, 2003, respectively,” the RBI said.

The RBI added that since the fresh rupee borrowings by the government (through private placements with the Reserve Bank of India) will be used exclusively to retire an equivalent amount of debts in foreign currency, with equivalent residual maturity, the transactions will not have any fiscal implications.

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