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A number of Indian companies, including special purpose vehicles (SPVs) of several infrastructure sector players, are seeking to raise funds through ‘ masala bonds’. And global investors are keenly watching the unfolding opportunity to tap them.
Masala bonds are rupee-denominated bonds raised in overseas markets. The funds raised are repaid in Indian currency, thereby, ensuring the bonds do not require currency hedge.
In the case of dollar or other currency offerings, a company has to take care of forward hedging cost and related issues.
Data from depositories show that from July 2016 to January 2017, masala bonds aggregating ₹16,500 crore were raised. HDFC, NTPC and Indiabulls Housing are among companies that raised funds through this option.
Majority of issues were by NBFCs which will, in turn, lend to others. Sembcorp and Equis invested in their infra SPVs through this route. Majority of issues have maturity of three to five years. Significantly, HDFC and NTPC have managed to raise masala bonds at coupon rates of 7-8 per cent.
Shubham Jain, Head of Corporate Ratings, ICRA, told BusinessLine that many companies are exploring raising funds through this route as masala bonds provide Indian borrowers access to a new set of investors, such as pension funds.
“While we expect companies to tap this route, the actual fund mobilisation may depend on the overall cost structure for such issuances. It will remain an opportunistic market based on the overall cost of funds with borrowers also evaluating the need to diversify their resource profile,” he said.
While the infrastructure sector in particular is highly dependant on debt from banks and NBFCs, the inability of banks to consider more exposure to the sector is forcing companies to look at other options, such as raising funds through bonds.
According to estimates, the infrastructure sector has a combined debt of ₹16 lakh crore. Of this, ₹9 lakh crore is from the banking sector and ₹7 lakh crore from NBFCs. Other funding options have relatively low direct exposure to the sector.
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