Masala bonds are vibrant yet powerful, innovative tools that help blend Indian investment opportunities with global capital. First introduced in 2014 through the International Finance Corporation (IFC), these unique bonds are rupee-denominated in nature and issued by Indian entities, permitting them to tap foreign investors. The primary focus remains on side-stepping currency risks that normally come with raising capital abroad.
Why are these bonds called ‘Masala bonds’?
These bonds are issued outside the country but denominated in Indian rupees rather than the local currency of the country where they are issued. ‘Masala’ basically is an Indian word that means spices.
The IFC used this word to evoke the country’s unique cultural cuisine. ‘Masala’ here resembles a mixture of local and international funding connections: local due to the denomination in Indian currency and international due to the funding raised from other nations. Masala bonds make the investor bear the risk, unlike dollar bonds, where the borrower takes the currency risk.
Defining features
On a fundamental level, Masala bonds are issued in foreign markets but are still payable in Indian rupees. The investors, not the bond issuers, take responsibility and shoulder the currency risk. This method shields Indian conglomerates and companies from exchange rate volatility and ensures predictable repayment obligations in Indian rupees.
Indian corporations, listed companies, NBFCs, and government-associated entities are eligible issuers of Masala bonds. The general minimum tenure, for example, is three years for issues up to USD 50 million (INR equivalent) and five years for higher sums. These bonds are usually listed on premier exchanges such as those in London or Singapore, expanding global investor reach.
Where does the money go?
Regulations prescribe specific and focused end uses of these bonds. The proceeds generated through these bonds can fund affordable housing, infrastructure, refinance rupee loans, or meet corporate working capital requirements.
Still, usage is generally restricted to investing in land acquisition, equities, capital markets, or certain high-risk, high-reward investments. The main objectives are productive expansion, growth, and nation-building.
Check the bond offer documentation for complete details on any specific bonds and their associated details. If doubts persist, visit the bond’s official website and discuss the queries with the designated customer service executive of the bond-issuing enterprise.
What are the benefits of Masala bonds?
For Issuers
- These bonds assist in eliminating currency risks for Indian companies, making the funding more reliable and cost-competitive. It also helps in raising fresh capital for funding important projects.
- It enables and facilitates access to a more diversified and borderless international pool of investors, diversifying borrowing opportunities and reducing overdependence on any single source of funds.
- Supports and promotes India’s sovereign goal to globalise the rupee and fuel crucial infrastructure projects. This is also a way to slowly but surely build the national currency into a solid reserve, even for global investors.
For Investors
- Lucrative, generally higher interest rates potentially outweigh the risk of rupee depreciation, and tax-friendly treatment in many jurisdictions further propels the possibility of subscriptions.
- It provides global investors with direct rupee-linked exposure to India’s growth trajectory. If the rupee appreciates and gains strength, investors stand to make handsome gains. It is basically a way to participate directly in the country’s growth story.
Hence, Masala bonds, in essence, act as a catalyst and a tool to spice up the global debt markets while giving the country’s businesses, especially listed entities, new, flexible avenues for growth, diversification, and expansion.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should review official bond offer documents and consult financial advisors before making investment decisions.
