What are Masala Bonds and who can invest in them?
What are Masala Bonds and who can invest in them?
You heard about Masala tea, masala bonda and masala Bajja. But in recent times there is new name floating in the investment world, Masala Bonds. Some of the companies like Axis Bank, IRFC has launched these Bonds through IFC. Other companies are getting approvals to launch them soon in foreign markets. What are these Masala Bonds? Who can invest in these Masala-Bonds? Do Indian companies really benefit from these new bonds?
What are Masala Bonds?
Masala Bonds are those which are rupee denominated bonds issued outside India. These Bonds are offered to foreign investors who have an interest in investing in India, but without direct exposure. These bonds are issued by International Finance Corporation (IFC), member of the World Bank for raising funds to use in India for infrastructure development.
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Features of Masala Bonds
- These bonds are issued outside India.
- These bonds are generally 10 year rupee bonds.
- Masala Bonds are issued by International Finance Corporation (IFC) which is a member of the World Bank.
- First set of Masala Bonds carried 6.3% interest rates and it can be changed in future.
- These Bonds are AAA Rated bonds.
- These bonds are listed and traded on the London Stock Exchange (LSE).
- These Masala bonds are denominated in Rupee, however, settled in US Dollars. Hence there is risk of currency rate risk for investors.
How did “Masala” name came in Masala Bonds?
Some of the countries like China have issued similar bonds like Dim Sum Bonds. Japan has launched Samurai bonds earlier. These names indicate their food and culture. IFC named Masala Bond for India as it touches Indian food and culture.
More about first issue of Masala Bonds
IFC has issued Masala Bonds in Nov-2014 which carried 6.3% interest rates. Quantum was 10 billion rupees ($ 163 Mn). These bonds carry tenure of 3, 5 and 7 year maturity period. Most of the investors were European Insurance companies. These funds were mobilized from international markets to support infrastructure in the country. IFC Masala bond issue supported Axis Bank Infra bond issue in Nov-2014. IFS issued bonds in London to leverage city’s standing as a premier financial center.
Further issues of Masala Bonds
IRFC also raised Masala bonds for $1 Bn earlier. Recently NTPC is also planning to raise Masala bonds as part of their financing for capital expenditure. NTPC board has approved raising funds from capital markets from foreign bond market.
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What are the advantages for Indian companies with these Bonds?
- These Bonds can blend their debt portfolio and optimize liability.
- It would help to cut down costs. If they need to issue any bonds in India, it should carry 7.5% to 8.5% interest rates. Currently Masala Bonds outside India can be issued at < 7% interest rates. Reduction in Interest rates for companies.
- Though Rupee denominated bonds, these are settled in US Dollars. Zero currency rate risk for Indian companies.
- Opened up a new pool of investors for investing in Indian companies.
Conclusion: Masala Bonds are good for foreign investors considering the low interest rates offered by other investment options outside India. While Indian investors may not directly get benefited through these bonds, any listed Indian companies that goes for Masala Bonds would definitely reduce their interest rates and their profit looks better. This is an indication for the improvement of their profits. Investors who are looking to invest in stocks can keep an eye on bonds issued by such companies and pick-up some of the top stock picks who are issuing these bonds.
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What are Masala Bonds and who can invest in them
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Some small investors having no PAN CARD cum to me for investment
Where thay can invest there hard earn savings ? As FD are not fulfill there required return
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It is posted today Vaibhav.
Thanks – This is very informative ..I didn’t know about this Masala Bond concept at all…Good to know
Dear Mr. Suresh, I want to invest in kaju, kismis, and other masalas in India. I have heard during Diwali and other Indian occassion times, the prices gone up extremely high and anybody can make profit during these short diwali period. how to invest in this ? please guide me. regards, K Das., Kolkata
I am planning to write an article about commodity trading, please wait till next week Kaushik
That’s interesting topic, Masala Bonds 🙂
But this is not good strategy to pick stocks of companies who issued Bonds to foreign companies. Do you think companied like Suzlon are worth buying based on this criteria?
Pardeep, Like I indicated, companies issuing Masala bonds can be targetted provide they are top stock picks (based on fundamentals and company performance)