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Masala Bonds

Masala Bonds

Handling all provisions under the ECB Guidelines.
Fulfilling report requirements and maintaining details of bonds.
Obtaining Loan Registration Number (LRN) from the RBI as applicable to ECBs.
Following all the compliance requirements on behalf of the client.
Facilitating offshore unlisted private placement and listed issues on the offshore stock exchange.


    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?

    Masala bonds are bonds issued outside India where Indian entities can raise money from the overseas market in rupees (and not foreign currency).
    This has eased the situation where Indian companies had to earlier depend only on External Commercial Borrowings (ECB) that were Raised and Repaid in dollars only.

    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.

    The Indian Railway Finance Corporation raised $1 Billion followed by the NTPC issuing the first corporate green masala bonds worth Rs 2,000 Crore.
    HDFC Bank also became the first Indian company to raise Rs. 3000 Crores from Masala bonds.
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    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:

    Suppose the interest rate is 10%. Here, the Indian entity has to pay Rs 100 annually and this can be paid (in dollars etc.) at the prevailing exchange rate at the payment time.
    Now if the exchange rate depreciates to 1$ = Rs 75, the bond buyer’s interest revenue of Rs 100 equals just around $1.3. He actually incurs losses in terms of dollars (might have got $2 if the exchange rate was the same or in the case of dollar-denominated bonds).

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      Main Features of Masala Bond:

      The bonds can be placed either privately or registered on a stock exchange
      Can be repaid on market prevailing rates as on the settlement date
      Issuer can issue masala bonds worth a maximum $750 million
      Minimum maturity period for bonds up to USD 50 million should be 3 years
      And for others – 5 year
      Its settlement happens in dollars


      Can be subscribed by a resident of a country that is a member o a Financial Task Force FATF or a similar regional body
      The bonds can be sold, transferred or offered as security overseas subject to IOSCO/FATF requirements
      Whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO’s) or has a MOU signed with SEBI
      Maximum borrowing will be up to INR 50 billion per financial year beyond that prior approval of RBI is to be taken

      Prohibited use:

      Real estate activities other than development of affordable housing projects / integrated township
      Investing in capital market
      Activities prohibited as per the foreign direct investment guidelines
      On-lending to other entities for above purposes
      Purchase of Land

       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:

      Masala Bonds are an attempt to internationalize the Indian rupee and give strength to Indian financial system and economy
      The government has relaxed the norms as well. Although the foreign portfolio investors can only invest in
      India through rupee-denominated debt instruments subjected to a cap limit of US$51 billion, however, Masala
      Bonds no longer forms the part of this limit as per the recent RBI notification
      Companies are shielded against the risk of currency fluctuations
      The surging foreign investment in rupee-denominated debt reflects an increasing international interest in the instrument. This was a welcome development for India.
      Recent data suggest not only that rupee-denominated debt issuance is increasing, but corresponding foreign currency debt has substantially declined.
      A Liquid rupee-denominated debt markets stimulate financial stability
      A vibrant bond market can open up new avenues for bond investments by retail savers thereby propping up the rupee structure. A very promising example is the Dim Sum bond that promoted the use of Yuan in global trade and investment.
      With talks back home here about full convertibility of rupees into other international currency through a unified market-determined exchange rate, Masala bonds can help the rupee go global.

       Benefits to Investors:

      It has low-credit risk and high rupee-linked yield for investors
      The Finance Ministry has cut the ‘tax deducted at source’ on residents outside the country on interest income from such bonds to 5% from 20% making it an attractive investment option. Also, capital gain from rupee appreciation is fully exempted from taxation.
      On an average, the rupee-denominated bonds have an interest rate of 2 to 3 % higher compared to the standard LIBOR (London Interbank Offer Rate)
      And in the real scenario for example bond offered in investor’s home country in the US, the yield is hardly 2% whereas in rupee denominated Masala Bonds the yield ranges from 5.00% to 7.00%. Globally, there is ample liquidity but interest rates in developed markets are low coupled with a fragile economy. India serves a rare combination of opportunity by being on a high growth trajectory with higher rates of interest.
      During 2007-08, Indian Companies tended to issue bonds in USD under ECB and repaid them whenever the exchange rate was lower. The Masala Bond framework ensures that the Indian Companies do not take advantage of such speculations by evenly distributing the risks.


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      Frequently Asked Questions on Masala Bonds
      What Are The Benefits To Its Issuers?

      • 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.

      Why Choose MUDS?

      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:

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