Indian curry took the world by storm and replaced fish and chips to become the No.1 favorite dish of the UK. With PM’s visit in 2016 to the UK to harness funds and a step in making UK a preferred investment partner of India and a favored destination to attract investors; these bonds primarily registered in London Stock Exchange got their name ‘The Masala Bond’.
There are other similar Foreign Currency Denomination Bonds like the Dim Sum in China and the Samurai Bond in Japan.
The peculiar term was first used by The International Finance Corporation (IFC) – a World Bank affiliate, the first major issuer of these bonds, to give it a strong Indian ting.
What are Masala Bonds?
Imagine a payment transfer where the issue and repayment are years apart. Masala Bonds quickly become a game changer for Corporate Debt market due to high benefits offered to both issuer and investors
Success Stories of Masala Bonds
There are many recent trends pointing precisely towards this direction as the bonds went more than 4 times oversubscribed soon after its listing in the UK. Thus, paving the way for Masala Bonds to enter the global market.
How Does The Masala Bonds Work ?
The peculiarity of the rupee-denominated bonds is that buying of bonds, interest payments, and repayment all are expressed in rupees. Unlike traditional foreign currency bond issued by an Indian entity, risk lies with the investor and is not borne by the Indian issuer company. Still not clear? Masala Bonds Simplified: This can be better explained by an example below:
Main Features of Masala Bond:
List of Top Masala Bonds:
|Name of the Company||Issue Size||Annual return||Period||Year of Issue||Listed in||Snippets|
|International Finance Corporation (IFC)||INR 2 Billion||7.10%||15 years||Mar 2014||London Stock Exchange||Longest-dated offshore rupee bond to be issued|
|HDFC||Rs 3,000 Crore||8.33%||3 years||July 2016||London Stock Exchange||Got oversubscribed by 4.3 times|
|Yes Bank||Rs 3.15 Billion||6.45%||5-year||Aug 2015||London Stock Exchange||Green Masala bond to be invested in clean energy|
|NTPC||Rs. 2000 Crores||7.25%||5-year||Apr 2017||Singapore Stock Exchange||lowest yield for any Masala bond by an Indian issuer till date and have been priced within AAA Corporate Bonds|
|Indian Railway Finance Corp. (IRFC)||$500 million||3.83%||10-year||Dec 7 2017||London Stock Exchange||Green bond under Climate Bonds Initiative to finance infrastructure for dedicated freight corridors and passenger transport in India.The debut green bond oversubscribed 3 times.|
Benefits to Economy:
Benefits to Investors:
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- According to S&P, this is a good opportunity to access cheaper funding sources viz a viz domestic market.
- According to India Ratings and Research (Ind-Ra), Masala bond will lower the cost of capital which is by far the highest in Asia.
- This especially comes to the rescue of Indian companies when banks back home are reluctant to lend at the moment.
MUDS has a pan India presence and have a rich pool of talented Chartered Accountants specializing in international finance.
- MUDS can handle all provisions under ECB Guidelines including reporting requirements
- Facilitates offshore unlisted private placement as well as listed issue on offshore stock exchange.
- Obtain Loan Registration Number (LRN) from the RBI as applicable to ECBs.
- Submit duly certified Form 83 in duplicate to the designated AD Category I bank.
- Reporting through ECB 2 Return
- Fulfil reporting requirements/ maintain details of issuance of such bonds as required by government or by other regulators/ bodies/ Acts.
- Help in calculation of reference FX rate thru a calculating agent and delivery of bond to investors
- Coordinate with paying agent to pay USD principal to investor
- Obtain loan registration number LRN through submission of Form 83
- Park bonds proceeds, security
- Facilitate guarantee for borrowings
- Conversion to equity
- Formulate offer documents
- Furnish list of primary bondholders to the regulatory authority
- Apply for relaxation given under sec 23-42 and handle other provisions under sec 17,117 and 179 of
- companies act of 2013
- Comply with MCA clarifications: -Issue of private placement offer letter PAS-4 -Prepare a list of Allottees PAS-5 -Filling list of allotment PAS-3 -Filling an E-form under Sec-117(3) of MGT 14 with the registrar of the companies and file CHG-9 under sec-77
- Contact details of professionals at MUDS
- Contact No: 9911222771
- Email: [email protected]
Masala bonds can be very useful in churning funds and giving impetus to the economy thru diplomatic exchange. With Uk being the leading global listing venue for rupee-denominated bonds, presently around 37 offshore Indian rupee bonds have been listed in the London Stock Exchange. UK’s exit from the European Union regime, there are questions about possibilities of International financial institution looking for other grounds like Paris or Frankfurt. London’s fears for the loss of top spot to other international financial centres makes them quite keen on playing the Indian story. The only line of caution to be drawn is that too much dependency on external debt amidst a shaky rupee is not good. Indian corporates, are likely to issue about $6 billion worth of Masala bonds this fiscal year but with an unstable economy, too much reliance on external debt (even in rupees) can get us a negative rating by global agencies. Since currency and economic growth are mainly dependant on external factors, investors will put issuers through a lot more scrutiny and closely watch their credibility. Higher the credit rating of a firm, the better would be the issue.
RBI reference: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR522091746D54E9902984BD593836C5064285D70.PDF
|BASIS FOR COMPARISON||IPO||FPO|
|Meaning||(IPO) Initial Public Offering is an offer of securities made to the public for subscription, by the company.||(FPO) Follow-on Public Offering is an offer of securities for subscription to public, by an publicly traded enterprise.|
|What is it?||First public issue||Second or third public issue|
|Issuer||Unlisted Company||Listed Company|
|Objective||Raising capital through public investment.||Subsequent public investment.|