Indian corporates raise over $3 bn from masala bonds issuances since 2016
Since the first masala bonds were issued in July 2016, Indian firms have raised more than $3 billion via the rupee-denominated debt instruments from the overseas market. Data from Bloomberg shows firms raised $3.24 billion in 16 months since the first issuance last year.
Since the first masala bonds were issued in July 2016, Indian firms have raised more than $3 billion via the rupee-denominated debt instruments from the overseas market. Data from Bloomberg shows firms raised $3.24 billion in 16 months since the first issuance last year.
Chetan Joshi, head of debt capital markets at HSBC India, expects continued supply given the amendment to regulations that allowed masala issuers not remain capped by FPI limits. “We have seen a gradual expansion of the masala investor base with each successive deal seeing a few new investors.
So this segment of the Indian capital markets is likely to continue to expand going forward,” Joshi points out. The Sebi had earlier halted all masala bond issuances till foreign portfolio investors’ investments in corporate bonds fell below 92% of the permitted quota. However, the RBI later separated these instruments from the overall FPI investment limit in corporate bonds.
Shashikant Rathi, executive vice-president and head of treasury and markets at Axis Bank, indicates that some prospective issuers had kept their plans on hold owing to the earlier notification halting the masala bond issuance. “These issuers will now resume their plans and we could see more issuances going forward. Also, the demand for these instruments from overseas investors continues to be strong and on the backdrop of FX volatility subsiding, we expect to see more issuers tapping the market,” Rathi says.
The most recent masala bonds were issued by the Indian Renewable Energy Development Agency that raised $300 million. One major overhang in masala bonds is the withholding tax of 5% that adds to the cost. Rathi agrees the withholding tax is a dampener since the same is grossed up and incident on the issuers. He, however, also asserts that the segment is a good diversification source.
“A bigger deterrent for this market is the tenor of the issuance. The RBI has allowed a maximum up to $50 million issuance in the three-year tenor so as to align the masala bonds with the ECB framework. Global investors are more comfortable taking FX and interest rate view on a 3-year tenor compared to a 5-year tenor,” Rathi indicates.
“The offshore masala to onshore bond spread differential has tightened and in recent deals some portion of the additional cost of withholding tax has been absorbed in the lower masala yields. Therefore, for issuers who truly want to diversify their bond holders base, masala bonds are definitely more attractive now than it was at the start,” HSBC’s Joshi points out.
Source: financialexpress
