Recently, it has been reported that Kerala Infrastructure Investment Fund Board issued Masala Bonds to raise funds from the overseas market.
In the context of Indian market, masala bonds are Rupees denominated financial instrument listed abroad. It is a bond that is used by Indian entities to raise funds overseas market in rupees, not in foreign currency.
The advantage of masala bonds is that the companies issuing masala bonds do not have to worry about rupee depreciation. Dollar bonds make the borrowers take the currency risk, but as masala bonds make the investors bear the risk hence, they get a currency risk premium earning higher yield i.e. higher rate of interest is provided on these bonds as compared to the standard rate of interest prevailing in the market.
HDFC in July 2016 raised 3,000 crore rupees from Masala bonds becoming the first Indian company to issue Masala Bonds followed by NTPC which issued first corporate green masala bonds. Kerala Infrastructure Investment Fund Board’s (KIIFB) on 17th May, 2019 celebrated its debut Masala Bond listing on the London Stock Exchange with Kerala CM ringing bell at London Stock Exchange .The KIIFB is the first state in India to tap the offshore Rupee international bond market with the ₹2,150 crore senior secured fixed-rate bond and is aimed at channelizing the resources earned from international investors for the southern state’s infrastructure development projects.
Apart from Indian Masala bonds other countries have also issued such type of bonds like China’s People’s Bank of China has previously issued yuan-denominated bonds termed Dim Sum Bonds and Japan had also floated yen-denominated bonds called as Samurai.
Hence, it can be said about masala bonds that such bonds can be used to fund infrastructure and other projects in India, to fuel internal growth via borrowings and internationalise the Indian currency.
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