Masala Bonds : INR Offshore Bonds

Some more important facts about IFC bonds :

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The initial subscription, repayment of principal and coupon will be in dollars but tied to the dollar rupee exchange rate. So for the investor the bond offers the convenience of a dollar denominated bond but the proceeds are linked to the dollar rupee exchange rate.

From the issuer perspective,
these are rupee-denominated bonds issued to offshore investors settled in dollars and, therefore, the currency risk resides with investors. The investor set is more broad-based than just FIIs (foreign institutional investors), as these instruments can usually be sold to other investors who prefer the fact that these are listed and cleared offshore.

The cost of hedging the currency risk involved in foreign currency borrowings takes away part of the advantage of lower borrowing costs. Allowing companies to issue rupee-denominated bonds will transfer any currency risk to the investor rather than the seller.

The offshore bond program will have important benefits for the Indian capital markets, including:

Bringing liquidity and depth to the offshore rupee market
Crowding in foreign investors to invest in rupee bonds
Encouraging other issuers to offshore markets
Paving the way for an alternative source of funding for Indian companies
Providing alternative hedging mechanisms for foreign investors

Oct 2013 – IFC launched $1 billion offshore rupee bond program (later increased to USD 2 Bn), the first time rupee-denominated debt had been issued offshore to invest within India. The bonds to be linked to the local currency and the proceeds will be used “to finance private sector investment in the country.

Nov-14 : issued a 10-year, Rs.1,000 crore bond (equivalent to $163 million) to support infrastructure development in India by mobilizing international capital markets and coined it as Masala Bonds.



Masala bonds are the first rupee bonds listed on the London Stock Exchange. Though there are other offshore rupee bonds, this issuance was the first to be listed on a stock exchange. They are the longest-dated bonds in the offshore rupee markets, building on earlier offshore rupee issuances by IFC at three-, five-, and seven-year maturities. However, these earlier bond issuances were not issued under the nomenclature of masala bonds.

The yield is 6.3 per cent and it is almost two percentage points lower than the rate at which the Government of India itself can raise money.

Apr-15 : RBI in its quarterly policy has said said it would allow companies to sell rupee-denominated bonds overseas.

IFCI has launched the rupee-denominated offshore bonds for Rs 1,600 crore or about $250 million, attracting first time investors to the overseas rupee markets. They have offered 6.45% rate with three and a half year maturity.

IFCs Other issuances : In March 2014 IFC became the first multilateral institution to list renminbi-denominated bonds on the London Stock Exchange, which was followed by the issuance of IFC’s first renminbi-denominated green bonds in June 2014. 

Prior to 2014, IFC pioneered the international issuance of renminbi-denominated bonds in China (Panda bonds) and Hong Kong (Dim Sum bonds). IFC was also the first to set up a program to regularly issue offshore renminbi-denominated discount notes.

They also have an onshore Bond program - IFC announced a $2.5 billion equivalent onshore rupee bond program in August 2014 that will finance infrastructure projects. This is coined as Maharaja Bonds.  They sold the debut tranche of around USD 100 mio in Sep-14. High quality global journalism requires investment.

$100m bond issuance included about $50m worth of conventional five-year and 10-year bonds, and $50m in two “more innovative” instruments with maturities of up to 20 years, which are designed to help the IFC match its financing to the requirements of longer-term infrastructure projects. The Co. expected to exhaust the entire $2.5bn facility “within 4-5 years. The five- and 10-year bonds were priced at about 50 basis points sold below the India sovereign curve, the five-year at 8.0 per cent and the 10-year at 7.97 per cent.

The IFC’s bond issue marks the second time an international body has raised onshore rupee debt. The Asian Development Bank sold a bond worth about $80m at current exchange rates in 2004.

Basically, their offshore bond program is like a EUROBOND - an international bond that is denominated in a currency not native to the country where it is issued.
& the onshore bond program is like a foreign bond - A bond that is issued in a domestic market by a foreign entity, in the domestic market's currency. Many of these issues have colorful nicknames such as:

Yankee bonds: dollar-denominated bonds which are issued by non-American borrowers in the U.S. market.

Samurai bonds: yen-denominated bonds which are issued by non-Japanese borrowers in the Japanese market.

Bulldog bonds: pound sterling-denominated bonds which are issued by non-British borrowers in the British market.
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