There are several ways to get access to funds in Real Estate Industry, its upon them to choose the "right one".

1. FUND RAISING OPTION FOR REAL ESTATE
VENTURE
KEY NOTE:
1) India’s average COE is around 15%
2) Real Estate & EPC commands highest COE (17.8%),
whereas FMCG & Capital Goods are the lowest (13.6%)
Prepared By,
Lijo Philip (2016-17)

2. Assessing Fund Requirements:
Why & When would a Developer need money?

3. Why do you need money?
Land Stage Commencement
of Project
• Token • For initiation of
• JV Deposit work
• Buying Land • For advances to
• To get plan creditors
• For Constructionsanctioned
Growth &
Liquidity
• Many a times the
company lets go of
several
opportunities
because of lack of
liquidity or Growth
Capital.
It is important not just to get the money, but to get it at the right time!

4. Understanding Private Equity:
How Private equity has grown in importance

5. What is a Private Equity Fund
Private equity is an asset class consisting of equity securities in companies that are not publicly traded on
a stock exchange.
A private equity fund is a pool of funds from institutional investors used for making equity
investments in various companies according to a fixed investment strategy.
– At inception, institutional investors make an unfunded commitment which is then drawn over the term of
the fund.
A private equity investment is generally made by a private equity firm, a venture capital firm or an angel
investor.
– Each of these categories of investor has its own set of goals, preferences and investment strategies.

6. Assessing Funding Options:
Pros and cons of various sources of funds available to developers

7. Fund Raising Options for a Developer
Debt Equity
Construction Finance Funding at Land Acquisition Stage
•Working Capital requirement (50% stake)
•Term Loan
Post Construction Finance Cash Out (after acquisition of land)
• Loan against property
•Lease Rental Discounting
Equity Funding at Project Level from
Venture Capital Fund
Equity Funding at Company Level
from Venture Capital Fund
Initial Public Offering (IPO)
Practically, maximum proportion of developers need funds for acquisition of land and
as per RBI guidelines, Banks do not provide loan for Land, but NBFC’s do.

8. Debt Funding
Construction Finance
• Working Capital Requirement
• Term Loan
Post Construction
Finance
• Loan Against Property
• Lease Rental Discounting
9

9. Bank Loan – Positives & Negatives
Positives
– Can be secured easily by providing security and sufficient collateral
– Relatively lower cost than equity funding
– No need to share profits with the Lender
Negatives
– Limitation on the amount which can be raised
– In case of slowdown, repayment of principal and interest becomes a burden
– Bank does not share Project risk

10. Equity Funding
Land Acquisition Stage
Project Level and /Or
Company Level from
Venture Capital Fund
Cash Out
Initial Public Offer (IPO)
11

11. Understanding Equity Funding :
- Various stages at which Private equity funds can bring in money
- Understanding the Pros and Cons
- The role of SPVs

12. Land Acquisition stage
The Funding at Land Acquisition stage includes the involvement of Investor & Developer jointly for
acquisition of land.
Separate Private Company need to be formed for stamp purpose in which both the parties will have
share depending upon the agreement signed by them.
Typically the Investor looks for:
– Whether the fund is FDI Complaint or Domestic. (The Foreign Investment Promotion
Board has set up guidelines for FDI projects).
– Non-Agriculture Land
– Whether the land is outright purchase or the Developer will get
Development Authority and Power of Attorney.
– Normally the Investor invest for 50% of the share, however in some exceptional cases
it can be more or less than 50%.

13. FDI Guidelines for Reference
FDI in townships, housing and construction-development projects: (100% FDI allowed
under automatic route)
Conditions: Minimum area be developed under
– In case of development of serviced housing plots, a minimum land area of 10 hectares (25
acres). Industrial Parks shall comprise a minimum of 10 units and no single unit shall
occupy more than 50% of the allocable area; The minimum %age of the area to be
allocated for the Industrial activity shall not be less than 66% of the total allocable area.
– In case of construction-development projects, a minimum built-up area of 50,000 sq.mts.
– In case of a combination project, anyone (above) two conditions would suffice.
The investment would further be subject to the following conditions:
– Minimum capitalization of US$ 5 million (Rs 24 crs) for JV with Indian partners.
– Investment cannot be repatriated before 3 years.
– At least 50% of the project must be developed within a period of 5 years from the date of
obtaining all statutory clearances.
14

14. Cash Out (After Acquisition)
The investor reimburses the fully/partially amount invested by developer in land. This is a
means by which a developers get back the money already invested in land.
A Separate SPV is formed and the land is transferred to that SPV and then later the developer takes out
money from the SPV.
The decision for cash out depends upon the credibility of the builder and market Value of the
land and the potential to generate the return, i.e., future cash flows.
15

15. Entity Level Vs SPV Level
Particulars Entity SPV
Amount Returned Exit of the investor is Exit to Investor
after 3 Years through a listing on the
stock exchanges
Whether Company Not Necessary. Investor Yes. Compulsory for the
has to Return can exit form listing on Company to return this
Amount Stock Exchange or selling amount.
his stake to a Third party.
What is the Since the initial capital There is a pressure on the
Advantage does not go out of the Company to return the
Company, the Company’s amount with IRR of around
financials and cash flow 25%.
become strong
16

16. What is a Special Purpose Vehicle (SPV)
– A Special Purpose Vehicle (SPV) is a new Private Limited Company formed for the purpose
of a specific Project.
– The SPV can also be a Partnership or a Limited Liability Partnership (LLP). However Foreign
Direct Investment (FDI) is not allowed in such case.
– In this case usages of funds given by an investor is for the specific project.
– Based on the valuation of the project, the equity in the SPV will be given to the investor so as
to generate a minimum of the required IRR
– Post completion of the project, the profits will be distributed between the equity investors as
agreed and the Company will be closed.
17

17. Venture Capital/Private Equity – Positives & Negatives
Positives
– Investor shares the risk of the Project
– Enables Company to raise additional Debt Funding
– Market perception of companies having equity financing is generally better
Negatives
– Relatively high cost of capital over a long period of time.
– Private equity needs exit avenues over a period of time.
– Additional compliance requirements and public scrutiny of companies accessing
public markets.
– Would want to get involved in some key management decisions.
18

18. PE Funding – Benefits & Responsibilities
Benefits Responsibilities
Long Term Funds; Disclosure Requirements;
Increased Shareholder Value; Promoters Holding diluted;
Diversified Equity Base; Corporate Governance;
Liquidity Premium to Shares; Transparent Reporting;
Higher Market Visibility; Shareholder Expectations;
Attract and Retain Talent. Increased Regulations;
Restrictions on transfer of shares.

19. Evaluating your funding options:
Comparing the impact of various avenues of funding in the light of distinct parameters

20. Impact of Fund Raising Options
Parameters Debt Private Equity Private Equity IPO
(Construction (Project level) (Entity level)
Finance)
14 – 18% per 22% + per 22%+ per
Return on
Cost of finance market
annum annum annum
performance
Return of
Principal and Yes Yes No No
Interest
Term
Short Term Short Term Medium Term Long Term
2-3 years 2-3 years 3-5 Years Permanent
Industry /
High Debt
Project Risk is Creates a Increases
companies are
Market shared with the Market Value for visibility and
not perceived
perception Investor the Company brand value
well
21

21. Getting familiar with the concept of IRR:
Understanding the impact of Cash Flows using illustrations

22. What is Internal Rate of Return (IRR)
The concept of IRR is based on the fact that the cash that you receive today is more valuable
than the cash you receive two years down the line or anytime in the future.
Suppose an investor invests Rs. 150 Cr in your project.
The Table below indicates the amount that has to be paid back to the Investor in addition to the principal of
Rs. 150 Cr.
If we agree on 22% IRR and return the money after 4 Years, then we have to give a Pay Out of Rs
239 Crs (including Dividend Tax) in addition to the Principal.
Amount (in Crore)
Period of
Investment Internal Rate of Return (IRR)
(Years)
10% 15% 18% 22% 25%
3 84 117 138 169 193
4 107 157 190 239 278
5 133 203 252 324 386
23

23. Why Cash Flows matter & Why is IRR so important?
More than Profits, it is the IRR that attracts funds! The reason is that IRRs are based on the
cash flows of the project and hence take into consideration the time value of money.
Let’s take an illustration to see the importance of IRR. You are presented
with the following two options to invest your money in – which project will you
Time Period Project A Project B
choose?
0 (1,000,000) (1,000,000)
Investment
1 450,000 250,000
made
2 400,000 300,000
3 350,000 450,000
4 300,000 450,000
5 250,000 450,000
Net Cash Flow 7,50,000 9,00,000
IRR 25% 23%
Although the cash flows from Project B exceed that of Project A, IRR of Project
A is 25% while the other has an IRR of 23%.

24. Understanding IRR difference using Affordable Vs Premium Project
Premium Project (Amount in Crore)
Inflow Year 0 Year I Year II TotalYear III
Promoter Contribution 7.50 - - - 7.50
Amount from
- 4.50 6.75 11.25 22.50
Customers
Total Inflows 7.50 4.50 6.75 11.25 30.00
Outflow Year 0 Year I Year II Year III Total
Land 7.50 - - - -
Construction - 1.35 2.70 2.70 6.75
Overheads - 0.34 0.08 0.34 0.75
Total Outflows 7.50 1.69 2.78 3.04 7.50
Cash Balances Year 0 Year I Year II Year III Total
Opening Cash
- - 0.50 0.50 -
Balance
Net Inflow / Outflow - 2.81 3.98 8.21 15.00
Drawings - 2.31 3.98 8.71 15.00
Closing Cash Balance - 0.50 0.50 - -
IRR 34%

25. Premium Project / Affordable Project
(FINANCIAL ANALYSIS WORKING)

26. Affordable Project (Amount in Crore)
Inflow Year 0 Year I Year II TotalYear III
Promoter Contribution 7.50 0 - - 7.50
Amount from
0 22.50 13.50 9.00 45.00
Customers
Total Inflows 7.50 22.50 13.50 9.00 45.00
Outflow Year 0 Year I Year II Year III Total
Land 7.50 0 - - 7.50
Construction 0 11.25 9.00 2.25 22.50
Overheads 0 2.03 2.03 0.45 4.50
Total Outflows 7.50 13.28 11.03 2.70 27.00
Cash Balances Year 0 Year I Year II Year III Total
Opening Cash
0 - 0.49 0.49 -
Balance
Net Inflow / Outflow - 9.23 2.48 6.30 18.00
Drawings 0 8.73 2.48 6.79 18.00
Closing Cash Balance - 0.49 0.49 0.00 0.00
IRR 68%
With the same amount of investment, an affordable project
Investment
made in
acquiring land

27. SECTION - II

28. What do Fund Managers look at before
investing?
Understanding various assessment parameters that Private Equity investors use.
This needs a few answers from you…

29. 1. Company background / History
How long have you been into existence? Do you
have a established a track record? What projects do
you have to showcase? How quality conscious are
you?
2. Financials
Do you have timely debt repayments ? Your creditors matter a lot! How strong is
your balance sheet ?
3. Management & Execution
How strong is your management team and your organizational structure?
How disciplined a company you are in managing your day to day records?
Can you prove your project execution capability?
How time bound and cost effective are you in your construction?

30. 4. Promoters
How efficient and visionary are the promoters?
How flexible and open to ideas are they?
How comfortable are the promoters towards partnering with someone and sharing data on a regular basis?
Would the promoters be willing to be disciplined in simple things like board meetings and regularly
tracking the projects?
Would the promoter be fine with justifying delays in timelines or cost to a partner?
A Private equity investment is not just flow of funds but a meeting of minds.

31. 5. Project
For a Real Estate Company , ultimately it boils down to the project!
Location
Cash Flow visibility
Returns / IRR

32. PE Funds - Priorities
Criteria Bank Funding PE Funding/IPO
Track Record High Low / Medium
Management Medium High
Past Financials High Medium
Product / Service Low High
Corporate
Low High
Governance
Market Size & Growth Low High

33. Getting ready for funding:
Partnering with a Private Equity Fund is about taking your organization through a
change

34. Need For Readiness
Several Entities like Regulators, Advisors, Auditors etc. are involved;
Time-bound steps are to be taken;
Company’s Operations and Records become transparent;
Financial and Intangible Penalties.
Stage 1 Stage 2 Stage 3 Stage 4
Strengthen Financial & Manage the Post Funding
the Company Legal Funding Precautions
Readiness Process
Company has to be fully ready and prepared to face the outside World.

35. Strengthen the Company
Stage 1 Stage 2 Stage 3 Stage 4
Strengthen Financial & Manage the Post Funding
the Company Legal Funding Precautions
Readiness Process
Strengthening management team, board of directors and advisory board; Protect
Intellectual Property;
Steps to increase the Valuation of the Company to increase the bargaining power;
Forming Joint Ventures, Collaborations;
Marketing Agents,Offices etc; Corporate Brand
building.

36. Financial & Legal Readiness
Stage 1 Stage 2 Stage 3 Stage 4
Strengthen Financial & Legal Manage the Post Funding
the Company Readiness Funding Process Precautions
Corporatization of business;
Consolidation of all businesses;
Divesting non-core, low value business;
Accounting and Financial Systems;
Past Financial and Operational Information;
Regularizing defaults, if any.
Create a Core Group consisting of Financial Advisor, Auditor, Finance Head & CEO to
handle the process.

37. Managing the Funding Process
Stage 1 Stage 2 Stage 3 Stage 4
Strengthen Financial & Legal Manage the Post Funding
the Company Readiness Funding Process Precautions
Identification of Investors; Data
Compilation;
Assistance in Selection of various agencies; Support
services during Due Diligence;
Restatement of Balance Sheet, Profit & Loss Account to confirm to legal requirements;
Assistance in drafting of Information Memorandum (PE) / Prospectus (IPO); Co-ordination
with Merchant Bankers, Auditors, Legal Advisors.
Track the Process Regularly.

38. Post Funding Precautions
Stage 1 Stage 2 Stage 3 Stage 4
Strengthen Financial & Manage the Post Funding
the Company Legal Funding Precautions
Readiness Process
Market & Key Investor Relations;
Assistance to Finance Department in Regulatory & Reporting requirements; Financial
Forecasts for Analysts and Investors;
Management of Issue Funds; Improving
Operational Efficiency; Project
Monitoring.
Remember: All your Actions will be in the Public Domain

39. Understanding the investment Process:
Deal making, structuring and exit

40. The Investment Process
Pre Funding Fund Raising Post Funding
Industry Analysis Investor Identification System & Process
Setup
Business Plan Draft Deal Structuring
Internal Audit
Financial Projections Valuation &
Negotiation MIS
Legal Structuring
Documentation Internal Control
Closure
Disbursement

41. What is a term sheet?
Term Sheets are brief preliminary documents designed to facilitate and provide a framework for
negotiations between investors and developers.
A term sheet generally focuses on a given enterprise’s valuation and the conditions under which
investors agree to provide financing.
The term sheet eventually forms the basis of several formal agreements including the
“Stock Purchase Agreement,” which is a legal document that details who is buying what
from whom, at what price, and when.

42. Managing valuation expectations
Discounted Cash Flow based Valuation
• Based on the present value of the future cash
flows of the project..
Relative Valuation
• Based on the current market price/agreed price
of the land to be acquired.
Factors on which Valuations depend:
Ultimately, Cash Flows of the project are being valued. If the Project has very clear visibility of upcoming
cash flows, it would fetch good valuation.
Riskier the project, lesser the valuation.
There is lot of dependency on the philosophy of the investor as well.
Valuations are done based on assumptions and logical calculations. At the end it is negotiation that brings
the actual valuation on the table.
More importantly there are trade-offs. The money required today and the money required tomorrow are
valued differently.
It is important to understand that Real estate is not a very standardized industry till date. Valuations are
based on several explicit and implicit factors. Different developers may get different valuations on the
same piece of land based on their credibility and past track record!

43. Various Structures prevalent
Waterfall Structure
– Distribution waterfall is a hierarchy delineating the order in which profit of the project will be distributed.
– The order in which the profits are distributed between the private equity fund and developer are
fixed beforehand.
– Usually the fund gets a higher proportion in the beginning until a certain IRR is achieved and
gradually the proportion of the developer increases.
Fixed IRR
– The fund gets a pre-decided IRR on the basis of which it gets returns irrespective of the upside that that
the developer gets on the project.
Minimum Fixed IRR + Upside
– There can also be structure wherein the Private Equity partner is promised a minimum IRR and is also a
partner in the upside.
– This would usually happen in a project where the fund is taking higher risks.
No IRR Commitment
– Here the fund comes in without any IRR commitment and this is a pure partnership wherein the profits
are distributed as per the share of each party in the project.
– The distribution however can be structured as per pre-decided manner.

44. Exit Issues
Management Buyout
Management buys out the stake of the Equity
partner and give it an exit with the expected
returns.
Issue: Cash availability with the management
Strategic Sale
Entrance of a strategic acquirer through a
merger or acquisition (M&A)
Issue: Finding the right buyer wherein the fund
and promoter both agree.
Secondary Sale
Sale of the stake to another Private Equity firm.
IPOs
Listing of the company of the stock exchange.
Issue: Reluctance of the promoters to go public
Liquidation
In case of SPVs, liquidation is common.
Issues:
Marketing & Sales Strategy – Funds wants steady
cash flows and expect the strategy in accordance
whereas the promoters might be willing to wait.
Issue: Agreement of both the parties.

45. PRIVATE PLACEMENT
(DOMESTIC) & MASALA
BONDS (OVERSEAS)

46. Private Placement under Companies Act - 2013
When a company issues shares to a select group of investors, instead of inviting public at
large, it is called private placement of shares. It falls neither in the category of a public issue,
nor a rights issue. It is a faster way of raising capital, as a company has to comply with fewer
requirements.
A Private Company may issue its securities-
By way of right or bonus or Through private placement
A Public Company may issue securities-
To public through prospectus i.e. “Public Offer”. Through private placement. Through right or
bonus issue.
CONDITIONS FOR PRIVATE PLACEMENT
No of subscribers: Under Private Placement an offer can be made not more than 200 people
and not just the limitation of allotment to 200 people but also invitation to subscribe cannot be
made more than 200 people. Within this 200 people limit Qualified Institutional Buyers and
Employees are excluded. No public announcement of such offers can be made.
Identify the persons to whom private placement offer/invitation has to be made: All offers
shall be made only to those persons whose names are recorded by the company prior to the

47. invitation to subscribe. Allotments can be made only to such persons addressed specifically to
the persons whom the offer is made along with the Offer letter.
Money payable through cheque/DD: All monies payable towards subscription of securities
under this section shall be paid through cheque or demand draft or other banking channels but
not by cash.
Amount of subscription: The money so received as subscription should be through the bank
account of the person subscribing to the securities, shall be kept in a separate bank account of
the company. The company shall also keep a record of the bank account from where such
payments been received, which has to be utilized only for allotment and the value of the offer
per person shall not be less than INR 20,000 of face value of securities . No cash transaction
is permitted.
Approval: The price of the security has to be justified and it also requires a valuation report by
a Registered Valuer (which can be a Company Secretary, Chartered accountant or a Cost
Accountant)
Articles of Association must also prescribe about approval of the Offer: The Articles of
Association must also provide for shareholders of the company through special resolution
approving the Offer and this resolution should be acted upon within 12 months and that at any
given point in time, there should be a active Offer for each kind of Security.
Tenure within which Allotment has to be carried out: Allotment has to be carried out within
60 days or the monies has to be repaid else from the 75th day and the failure to repay has a
liability of interest at 12% p.a. In case of FDI (Foreign Direct Investment), RBI has provided for
180 days for allotment.

48. Filings: The company shall maintain a complete record of private placement offers in the
FormPAS-5.
Provided that the copy of such records along with private placement offer letter in Form PAS-
4 along with the names of the offeree has to be filed with the Registrar of Companies within 30
days from the date of circulation which includes the date of the Offer letter and again after
allotment of the securities within 30 days a return of allotment has to be filed with the ROC.
File return of allotment with Registrar : a return of allotment of securities under section 42
shall be filed with the Registrar within 30 days of allotment in Form PAS-3 and with the fee as
provided in the Companies (Registration Offices and Fees ) Rules, 2014 along with a complete
list of all security holders containing-
Full name, address, PAN, and E-mail id of such security holders. Class of security held Date of
becoming security holder Number of securities held, nominal value and amount paid up on
such securities and particulars of consideration received Issue share certificates and update
minutes book and registers.
Penalty: Non-compliance if any can lead to penalty amounting to INR 2 crores or the amount
involved in the offer, whichever is higher.
STEPS INVOLVED UNDER PRIVATE PLACEMENT
Send Notice for convening Board Meeting at least 7 days before convening the Board Meeting.
Notice shall be sent to shareholders for convening of Extra Ordinary General Meeting for the
approval of private placement offer Letter. Draft the private placement offer letter. Special
Resolution shall be passed in the EGM so convened, which shall remain valid for a period of
12 months. File Form MGT -14 with the ROC within 30 days of passing Special Resolution.

49. Issue offer letter in PAS-4 within 30 days of record of name of persons Prepare complete
record of Private Placement in PAS-5File Form PAS-4 and Form PAS-5 with ROC within 30
days of issue of offer letter in Form GNL-2Make Allotment of shares within 60 days of receipt
of Money from the persons to whom right was given. Call Board Meeting for allotment of
shares File PAS-3 with ROC within 30 days of Allotment. Issue share certificates and update
minute’s book and registers.

50. OVERVIEW ON MASALA BONDS
INTRODUCTION: Reserve Bank of India (RBI) on 29th of Sept 2015, came out with a Circular whereby
it has allowed the Indian Corporate to issue the Masala Bonds on the terms and conditions mentioned
in the said circular. This was further amended on several occasions. In General term Masala Bonds
refers to a debt instruments having some exotic features, but the RBI has authorised the issue only
normal debt bonds which shall denominated in the Indian currency and issued to offshore investors.
FEATURES OF MASALA BONDS IN TERMS OF RBI CIRCULAR:
o Denominated in Indian
Currency Issued to investor
outside India
o Currency risk is on investor not on
Borrower These may be listed or privately
placed

51. PARAMETERES FOR ISSUANCE OF MASALA BONDS
Eligible Issuer for Masala Bonds
Any Company, Body Corporate, Real Estate Investment Trusts (REITs) and Infrastructure Investment
Trusts (InvITs) are eligible issue Masala Bonds, However the Issuer is required to comply with the
norms and requirements for issuing Masala bonds (as may be applicable) in the respective country.
Recognized Investor for Masala Bonds
The Rupee denominated bonds can only be issued in a country and can only be subscribed by a
resident of a country:
• That is a member of Financial Action Task Force (FATF) or a member of a FATF- Style
Regional Body; and

• Whose securities market regulator is a signatory to the International Organization of Securities
Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A
Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and
Exchange Board of India (SEBI) for information sharing arrangements; and
• should not be a country identified in the public statement of the FATF as:
a. A jurisdiction having a strategic Anti-Money Laundering or Combating the
Financing of Terrorism deficiencies to which counter measures apply; or

52. b. A jurisdiction that has not made sufficient progress in addressing the
deficiencies or has not committed to an action plan developed with the Financial
Action Task Force to address the deficiencies.
Types of Instruments That Can Be Issued
Only plain Vanilla bonds can be issued under framework of RBI for Issue of Rupee denominated bonds
to offshore investors. Plain Vanilla bonds are not defined in the RBI Directions however it generally
means typical senior unsecured or secured and fixed or floating rate notes.
Routes & Limits Of Funds Raised Through Masala Bonds
1) AUTOMATIC ROUTES: Bonds can be issued under automatic route if the amount sought to
be raised by issue of bonds does not exceeds Rs. 50 Billion.
2) APROVAL ROUTE: For raising amount more than Rs. 50 Billion through issue of Bonds
approval of RBI is required.
Minimum Maturity Period
Minimum maturity period for Masala bonds is 3 years and any options whether call or put shall be
exercisable only on completion of maturity period.

53. End Use of Proceeds
The proceeds raised through Masala Bonds can be used for any purpose except the following:
Real estate activities other than development of integrated township / affordable housing
projects
Investing in capital market and using the proceeds for equity investment domestically
Activities prohibited as per the foreign direct investment guidelines
On-lending to other entities for any of the above purposes
Purchase of Land
Exchange Rate for Conversion
The exchange rate for foreign currency – Rupee conversion shall be the market rate on the date of
settlement for the purpose of transactions undertaken for issue and servicing of the bonds.
Hedging of Currency Risk
The overseas investors will be eligible to hedge their exposure in Rupee through permitted derivative
products with AD Category - I banks in India. The investors can also access the domestic market
through branches / subsidiaries of Indian banks abroad or branches of foreign bank with Indian
presence on a back to back basis.

54. Leverage Ratio
The borrowing by financial institutions shall be subject to the leverage ratio prescribed, if any, by the
sectoral regulator as per the prudential norms.
All in Cost
All-in cost refers to every cost involved in a financial transaction, that includes total fees and interest
involved in a financial transaction. The all-in-cost of borrowing by issuance of Rupee denominated
bonds should be commensurate with prevailing market conditions. There is no cap on this only
requirement is it should be commensurate with prevailing market conditions.
TAXATION ASPECT
A withholding tax of 5% shall be applicable on interest income arising to holder of Masala Bonds and
capital gains from rupee appreciation are exempted from tax.
APPLICABLITY OF COMPANIES ACT
Ministry of Corporate Affairs (MCA) vide its General Circular No. 9/2016 dated 3 August 2016, has
clarified Indian companies issuing Rupee denominated bonds overseas (Masala Bonds) under the
Reserve Bank of India's (RBI) policy on external commercial borrowings will not be required to comply
with the public issue and private placement disclosure and listing norms under Chapter III of the
Companies Act, 2013 (Companies Act) as well as the provisions governing the issue of secured

55. debentures under Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 (Debenture
Rules). All other provisions of the Companies Act will continue to apply to Masala Bonds.
APPLICABILTY OF SEBI NORMS
Further SEBI vide its Circular No. SEBI/HO/IMD/FPIC/CIR/P/2016/67 dated 4th August 2016 has
clarified that foreign investment in Overseas Rupee denominated bonds shall be reckoned against the
combined corporate debt limit but shall not be treated as FPI investments and hence shall not be under
the purview of the SEBI (Foreign Portfolio Investor), Regulations, 2014.
BENEFITS OF ISSUING MASALA BONDS
1) help Indian companies to cut down cost of borrowing
a. help the Indian companies to tap a large number of investors
No currency risk to Indian Companies.
2) help in building up foreign investors’ confidence in Indian economy
a. An offshore investor earns better returns by investing in Masala Bonds rather than
by investing in his home country

56. COMPANIES WHIH HAS ISSUED MASALA BONDS
S.No. Name Of The Company Amount Coupon Stock Tenor
Raised (Rs. Rate (% Exchange (in
Crore) P.A.) Where Listed Years)
1 Adani Transmissions 500 9.1 - 5
Limited
2 NTPC 2000 7.68% LSE/SGX 5
3 HDFC Ltd. 3000 7.875% LSE 3
4 Indiabulls Housing 1300 8.57 - 3
Finance Limited
CONCLUSION
The Masala Bonds issued till date by the Indian Companies has received good response from overseas
investors and after the success of bond issued by some companies in the past and the supporting
steps taken by policy makers has acted as the motivating factor for other Indian Corporates to go for
Masala Bonds issue. The Masala Bond issue can become a game changer for Corporate Debt market
of India given its benefits to issuer and investors.