After HDFC and NTPC, more Indian companies like PFC, REC, Neyveli Lignite, EESL, NHAI, Yes Bank, IREDA and others may soon join the race to soon tap the overseas market for “Masala” Bonds.
Masala bonds are rupee-denominated bonds that are issued to overseas buyers. Unlike other avenues like the ECBs that came with the currency risk (as they have to be raised and paid in dollars), the masala bond has to be paid in rupees and with the Indian rupee having a limited convertibility, the currency risk lies with the investor.
Why the name Masala?
This nomenclature has come from the World’s Bank arm—IFC that raised Rs 1000 cr last year with the tag Masala. IFC has also raised yuan denominated bonds in China called Dim-sum bonds. Japanese yen-denominated bonds are called Samurai.
Union power, coal, mines and RE minister Piyush Goyal had recently said that power companies are lining up plans to raise anywhere close to $2 billion by way of masala bonds.
NTPC Limited (NTPC), the largest power generating company in India has already successfully raised Rs 2,000 crore through rupee denominated ‘Green Masala Bonds’ from the offshore markets on 3rd August,2016.
The move comes close on the heels of the HDFC’s July 14 issue that raised Rs 3000 cr through its 3-year “green” bonds.
A notable feature of the bonds is that they are ‘Green’ bonds with third party assurance and Climate Bonds Initiative certification. The proceeds would be used to finance the renewable energy projects of companies. India has targeted a capacity addition of 175 GW by 2022 a move that needs massive funds.
Sources said that more companies are lining up plans to tap the global markets with these masala bonds and after HDFC and NTPC, it could be the state-owned EESL that may soon launch similar bonds. NHAI also plans to tap the international markets for similar bonds and raise close to $750 million or close to Rs 5000 crores.
As per Fitch ratings, these Masala Bonds by HDFC and NTPC could be the start of a series of such bonds issued by Indian companies and would help in broadening and diversifying the market. “This will be positive for the better-quality issuers that are able to take advantage of offshore capital markets to diversify their funding sources without assuming currency risk,” Fitch said in a release
Ratings agency S&P expects the issuance of masala bonds to touch $5 billion annually over the next two to three years. Here is an explainer on what masala bonds are all about:
Although the Masala Bond market is in its infancy, Fitch Ratings said that the two issues should mitigate initial market concerns about liquidity.
“That India’s first corporate Masala Bonds were issued by better-quality firms probably helped support investor demand and with their relatively attractive pricing. The bond pricing was surprisingly competitive relative to onshore funding considering uncertainty over liquidity and currency risks. We believe this could encourage other Indian issuers to go to the market,” Fitch Ratigs said.
Investors from Asia contributed 70% to NTPC’s bonds with the rest from Europe and Middle East. The Notes were distributed to high quality fixed income accounts: 80% to fund managers, Insurance companies and sovereign wealth funds, 15% to banks and 5% to others.
“NTPC is marching ahead to increase its renewable portfolio to 10GW, in furtherance of the Government of India target to achieve 175GW of renewable capacity by 2022. We are the largest power generating company in India; the offering of Green Masala Bonds with third party assurance and Climate Bonds Initiative certification, reflects our commitment to renewable energy in the times ahead, “Gurdeep Singh, CMD, NTPC said.
“The bond scores several firsts for us, it is the first Masala Bond of the company, first green masala bond with certification from Climate Bonds Initiative, first 5 year masala bond from an Indian corporate and first with dual listing, at SGX and LSE,” said Kulamani Biswal, Director(Finance) NTPC.
“We were keen to tap a new investor base for our renewable energy programme and avail of offshore financing without the associated exchange risks, both objectives we could achieve with this offering. We are grateful for the strong investor support at attractive yields leading to a satisfactory outcome.”