India plans more masala bond issues in London

The launch of the world’s first-ever rupee-denominated or “masala” bond outside of India by the London Stock Exchange (LSE) four months ago is likely to be followed by more issues over the next three months.

Last week the Reserve Bank of India (RBI) said that it would permit banks to issue masala bonds, in the overseas market to strengthen their capital base, as well as for financing infrastructure and affordable housing.

As Britain’s prime minister Theresa May began a two-day visit to India, the UK government said that four masala bonds worth a total of £600m (US$748m) are expected to be listed in London by the end of January 2017.

Last July’s London listing was by the Housing Development Finance Corporation (HDFC), one of India’s biggest banks and the country’s leading provider of finance for housing. The bond raised 30bn rupees (INR) – equivalent to US$450m/£360m. With a maturity of three years and an annual yield of 8.33% it was more than four times oversubscribed, with significant interest from Asian investors.

Since then, more than £900m of masala bonds have been issued in London, equivalent of more than 70% of the global offshore market.

The government said that the latest four bonds will provide financing to expand India’s highway and rail networks and meet its plans to boost energy efficiency and renewable energy.

They will be issued by Indian government-backed corporates Indian Railway Finance Corporation, Indian Renewable Energy Development Agency, Energy Efficiency Services Limited, and National Highways Authority of India.

“This government will continue to work closely with both India and our financial services sector to ensure our growing rupee bond market continues to help finance India’s ambitious infrastructure investment plans,” May said in a statement.

The trip to India is May’s first bilateral visit to a non-European Union (EU) country since she took over from David Cameron in July. Its aim is to boost ties between the countries and pave the way for a post-Brexit trade deal.

Masala bonds, launched in 2015, enable Indian firms to raise money while offering international investors access to higher yields in a zero-yield world. They can be more expensive than issuing bonds in the local market due to India’s 5% withholding tax on such international deals.

The first-ever ‘green’ masala bond was listed on the LSE in August 2015 by the International Finance Corporation (IFC), the private sector arm of the World Bank.


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