masala bonds

Masala Bonds

What are Masala Bonds?

A Masala Bond is a type of bond which is issued by any company (Indian entity or corporate), denominated in Indian Rupee and issued outside India. It is issued outside India, but not in the local currency of that place, rather in Indian Rupee. It is also known as “Rupee denominated bonds overseas”.

What is a bond– A bond is a loan (given by person(s) who buys a bond) to a company or government (which issues a bond) that pays investors a fixed rate of return over a specific timeframe.

Why is Masala Bond named so?- The term Masala means spices in India. The term was used by International Finance Corporation (IFC) [an arm of World Bank] to evoke the culture and cuisine of India.

Masala Bonds

First Indian Company to Issue Masala Bond

In the year 2016, HDFC became the first company in India to issue a Masala Bond. It raised Rs 3,000 crore through the masala bond issuance at 8.33% for a paper maturing in 37 months.

However the first Masala bond was issued by IFC (an arm of World Bank) in November 2014. There it raised Rs 1,000 crore bond to fund infrastructure projects in India.

Framework of Issuance of Rupee denominated bonds overseas (Masala Bond) by RBI

Eligibility of borrowers– Any corporate or body corporate is eligible to issue Rupee denominated bonds overseas. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) coming under the regulatory jurisdiction of the Securities and Exchange Board of India are also eligible.

Type of instrument– Only plain vanilla bonds issued in a Financial Action Task Force (FATF) compliant financial centres; either placed privately or listed on exchanges as per host country regulations.

Recognised investors– Any investor from a FATF compliant jurisdiction. Banks incorporated in India will not have access to these bonds in any manner whatsoever.

Maturity– Minimum original maturity period for Masala Bonds raised upto USD 50 million equivalent in INR per financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years.

Source: RBI

 

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