2019 – Posted in: Daily News – Tags: London Stock Exchange

MASALA BOND

For: Preliminary & Mains

Topic covers: Masala Bonds – objectives, significance, who can issue or buy; Benefits to India

Masala Bonds

Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets.

Masala

Masala means spices and the term was used by International Finance Corporation (IFC) to popularise the culture and cuisine of India on foreign platforms.

Objective

The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalise the Indian currency.

Strengthening Indian Currency

The bonds are legitimately pegged to the Indian currency. So, investors will directly take the currency risk.
If the value of Indian currency falls, the foreign investor will have to bear the losses, not the issuer which is an Indian entity.
If foreign investors eagerly invest in Masala Bonds or bring money into India, this would help in supporting the rupee.
The issuer of these bonds is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign currency.
Currently, these bonds are listed on the London Stock Exchange.

Who can invest in Masala Bonds

Foreign investors who want to take exposure to Indian assets and are constrained from doing it directly in the Indian market or prefer to do so from their offshore locations can invest in Masala bonds.

The subscriber of these bonds can sell rupee bonds to a third party (domestic or offshore) but the proceeds from the issue can’t be used for real estate activities or capital market investment.

However, the proceeds from these bonds can be utilised for development of integrated township/affordable housing project or any other infrastructural development project.

Source: Business Today

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