With masala bonds, Indian corporates will have more option to blend their debt portfolio to optimize the liability and minimize the cost, says SBI's Ecowrap report
Leading companies are expected to issue rupee-denominated offshore bonds also called ‘masala bonds’ worth USD 6 billion this year, a research report published by SBI said.
With masala bonds, Indian corporates will have more option to blend their debt portfolio to optimize the liability and minimize the cost. Further, it can be a launch pad to sell the strength of rupee to the overseas investors, according to SBI's Ecowrap report on Masala Bonds.
Though Indian Railway Finance Corporation (IRFC) seems to be the first PSU to test the Masala, with having board approval for $1 billion to raise from offshore market, we expect many more PSU and Corporate will join the league in coming times, the Ecowrap report added.
IFC issued a 10-year, 10 billion Indian rupee bond in November 2014 to increase foreign investment in India, mobilizing international capital markets to support infrastructure development in the country. These will be offered and settled in US dollars to raise Indian rupees from international investors for infrastructure development in India.
IFC will convert bond proceeds from dollars into rupees and use the rupees to finance private sector investment in India. IFC has named these ‘Masala’ bonds as ‘masala’ is a globally recognized term that evokes the culture and cuisine of India. This is not the first time that a bond has been named after the food or culture of a country.
Chinese bonds, for example, are called Dim sum bonds, and Japanese ones as Samurai bonds.
With the success of IFC, it is felt that there is good appetite for rupee debt among international investors and
accordingly RBI in its first bio-monthly monetary policy statement, 2015-16, issued on 07th April 2015, proposed to permit Indian Corporate to raise rupee denominated bond from overseas market.
Overseas borrowings by Indian companies have been on the rise as firms sought to take advantage of the lower cost of capital in markets like the US and Europe. Average annual borrowing via ECBs by Indian firms in last three years is $32 billion. Reliance Industries Ltd (RIL) is the frequent issuer of foreign currency bonds. Over the past three years, RIL alone has borrowed nearly $10 billion through such bonds.
Over 35% of the ECBs raised during last year are for refinancing the earlier ECBS, followed by 32% for payment of capital goods.
We expect Road, Railway, Telecommunication, Power and Mining Exploration and Refining sector will be the biggest beneficiaries of Masala Bond, the SBI report said.
Indian Railway Finance Corporation (IRFC) who plans to borrow a total of Rs.17,655 crore ($2.81 bn) in 2015-16 from domestic and offshore markets, is already having board approval to raise $1 billion from offshore market and will probably be the first domestic issuer to eye so-called ‘masala’ debt to diversify its source of funds.
While the move could potentially open up a new pool of investors for Indian companies to tap, the benefits may initially be restricted to large high-rated corporate entities that have an established track record in overseas bond markets. Though the IFC 10-year, 10 billion Indian rupee bond was carrying AAA rating and yield of 6.3%, can serve as a benchmark for the type of bond, we have to see the investors' response once corporates start marketing their Masala, the report added.
With masala bonds, Indian corporates will have more option to blend their debt portfolio to optimize the liability and minimize the cost. Further, it can be a launch pad to sell the strength of rupee to the overseas investors, according to SBI's Ecowrap report on Masala Bonds.
Though Indian Railway Finance Corporation (IRFC) seems to be the first PSU to test the Masala, with having board approval for $1 billion to raise from offshore market, we expect many more PSU and Corporate will join the league in coming times, the Ecowrap report added.
IFC issued a 10-year, 10 billion Indian rupee bond in November 2014 to increase foreign investment in India, mobilizing international capital markets to support infrastructure development in the country. These will be offered and settled in US dollars to raise Indian rupees from international investors for infrastructure development in India.
IFC will convert bond proceeds from dollars into rupees and use the rupees to finance private sector investment in India. IFC has named these ‘Masala’ bonds as ‘masala’ is a globally recognized term that evokes the culture and cuisine of India. This is not the first time that a bond has been named after the food or culture of a country.
Chinese bonds, for example, are called Dim sum bonds, and Japanese ones as Samurai bonds.
With the success of IFC, it is felt that there is good appetite for rupee debt among international investors and
accordingly RBI in its first bio-monthly monetary policy statement, 2015-16, issued on 07th April 2015, proposed to permit Indian Corporate to raise rupee denominated bond from overseas market.
Overseas borrowings by Indian companies have been on the rise as firms sought to take advantage of the lower cost of capital in markets like the US and Europe. Average annual borrowing via ECBs by Indian firms in last three years is $32 billion. Reliance Industries Ltd (RIL) is the frequent issuer of foreign currency bonds. Over the past three years, RIL alone has borrowed nearly $10 billion through such bonds.
Over 35% of the ECBs raised during last year are for refinancing the earlier ECBS, followed by 32% for payment of capital goods.
We expect Road, Railway, Telecommunication, Power and Mining Exploration and Refining sector will be the biggest beneficiaries of Masala Bond, the SBI report said.
Indian Railway Finance Corporation (IRFC) who plans to borrow a total of Rs.17,655 crore ($2.81 bn) in 2015-16 from domestic and offshore markets, is already having board approval to raise $1 billion from offshore market and will probably be the first domestic issuer to eye so-called ‘masala’ debt to diversify its source of funds.
While the move could potentially open up a new pool of investors for Indian companies to tap, the benefits may initially be restricted to large high-rated corporate entities that have an established track record in overseas bond markets. Though the IFC 10-year, 10 billion Indian rupee bond was carrying AAA rating and yield of 6.3%, can serve as a benchmark for the type of bond, we have to see the investors' response once corporates start marketing their Masala, the report added.
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