The PPT contains basic details about Sovereign bonds, Masala bonds, Floating bonds and Sleeping Beauty bonds.

1. Prepared & Presented By:
Rochit Patwa (350320)
Shusmita Kuila (350326)
Rewa Punekar (350309)
Swarnali Saha (350319)
Omkar Joshi (350308)
Snigdha Sinha (350303)
Madhumita (350312)
TYPES OF BONDS
Fixed Income Securities
Case Number 3
Bonds
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2. Sovereign bonds
Introduction
• It is a Debt security issued by a national government.
• It can be denominated in both foreign and domestic currency.
• It promises to pay the buyer a certain amount of interest for a
specified period and repay the face value on maturity.
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3. Issuer of the Bonds
• The Bond is issued by Reserve Bank on behalf of Governm
-ent of India e.g. Sovereign Gold Bond.
• Banks also assists their customer and other investors to buy
this sovereign bonds. E.g., ICICI bank, HDFC bank etc.
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4. Advantages
• Interest payments (fixed or floating)
• Tax Benefits
• Demat
• Loans
• Investment Options
Disadvantages
• Low returns (low interest rate) as compared to other securities.
• Lock in period.
• Value of Bonds can be reduced in case of increase in interest rate
or inflation.
• Sovereign bonds can be vulnerable in case of fiscal crisis.
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5. Masala Bond
Introduction
• Masala bonds are bonds issued outside India but denominated
in Indian Rupees, rather than the local currency.
• Masala is an Indian word and it means spices. The term was
used by the International Finance Corporation (IFC) to evoke
the culture and cuisine of India.
• Unlike dollar bonds, where the borrower takes the currency
risk, masala bond makes the investors bear the risk.Bonds
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6. History
• November 2014 - First Masala bond was issued by the World
Bank- backed IFC - Raised 1,000 crore bond - Infrastructure
projects in India
• August 2015- IFC issued Green masala bonds- raised Rupees
3.15 Billion t- Private sector investments that address climate
change in India.
• July 2016- HDFC( First Indian Co.)- Raised 3,000 crore rupee
s from Masala bonds.
• August 2016- NTPC(public sector unit )issued first corporate -
Green Masala Bond 2,000 crore rupees. traded only at London
Stock Exchange(LSE).Bonds
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7. Features of Masala Bonds
• The bonds can be placed either privately or registered on a
stock exchange
• Can be repaid on market prevailing rates as on the settlement
date
• Issuer can issue masala bonds worth a maximum $750 million
• Minimum maturity period for bonds up to USD 50 million
should be 3 years
• And for others – 5 year
• Its settlement happens in dollarsBonds
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8. Eligibility
• Can be subscribed by a resident of a country that is a member of
a Financial Task Force FATF or a similar regional body
• The bonds can be sold, transferred or offered as security over
seas subject to IOSCO/FATF requirements
• Whose securities market regulator is a signatory to the Internati
onal Organization of Securities Commission’s (IOSCO’s) or has
a MOU signed with SEBI
• Maximum borrowing will be up to INR 50 billion per financial
year beyond that prior approval of RBI is to be taken.Bonds
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9. Prohibited
• Real estate activities other than development of affordable
housing projects / integrated township
• Investing in capital market
• Activities prohibited as per the foreign direct investment
guidelines
• On-lending to other entities for above purposes
• Purchase of Land
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10. Benefit to Corporates
• They can borrow at low interest rates from offshore markets. Interests rates
in developed countries are much lower than prevalent in India.
• Being issuer they are not subjected to FX risks. It will be fully borne by the
investors. Indian corporates have suffered considerable losses earlier on ECB
which are usually USD dominated due to continuous structural downtrend of
INR against USD since last 2-3 decades.
• They can access wide investor base.
• It will also help in diversification of portfolio.
Benefits of Masala Bond
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11. Benefit to Investors
• Masala bond, carrying relatively much higher interest rate, is a great in
vestment option for offshore investors.
• They can bet on INR exchange rates. They can benefit when rupee
appreciates against the bond's redeemable/repayable currency.
• Investors who are reluctant to venture into unknown markets can easily
show interest in masala bonds owing to the credibility of IFC.
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12. Benefit to Indian Government
• This will help in building up foreign investors confidence and knowledge about Indian
economy.
• This will contribute to capital account, thus balancing Balance of Payment.
• Masala bond is a good way to tap foreign capital. India has envisioned few many ambitious
goals like Make in India, developing smart cities, digital India, boosting infrastructur
e, climate INDC etc. For this India will require around INR26 lakh crores. A big chunk
of it will have to be financed by foreign capital. India has to look for ways to tap foreign so
vereign wealth and attract foreign capital.
• In India many long term debt stressed projects especially infra and power are stalled
due to capital shortage, long term masala bonds is lucrative for power, road and infra
companies.
• INR has been falling in a structural downtrend since last few decades against major hard
currencies. Given that FX risk is borne by the creditor, during repayment of bond coupon
and maturity amount, if rupee depreciates, RBI realizes marginal saving during repayment.
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13. List of Top Masala Bonds:
Name of t
he Compa
ny
Issue
Size
Annual
return
Period
Year of
Issue
Listed in Snippets
International
Finance Corpo
ration (IFC)
INR 2
Billion
7.10% 15 years Mar 2014 London Stock
Exchange
Longest-dated offshore rupee
bond to be issued
HDFC Rs 3,000
Crore
8.33% 3 years July 2016 London Stock
Exchange
Got oversubscribed by 4.3 times
Yes Bank Rs 3.15
Billion
6.45% 5-year Aug 2015 London Stock
Exchange
Green Masala bond to be invested
in clean energy
NTPC Rs. 2000
Crores
7.25% 5-year Apr 2017 Singapore
Stock Exchange
lowest yield for any Masala bond
by an Indian issuer till date and
have been priced within AAA
Corporate Bonds
Indian Railway
Finance Corp.
(IRFC)
$500
million
3.83% 10-year Dec 7 20
17
London Stock
Exchange
Green bond under Climate Bonds
Initiative to finance infrastructure
for dedicated freight corridor
and passenger transport in India.
The debut green bond oversubscri
bed 3 times.
Bonds
Market

14. Floating Bond
Introduction
• Bond whose interest amount fluctuates in step with the market
interest rates, or some other external measure.
• Price of floating rate bonds remains relatively stable.
• Yield is higher.
Issuers
• In the United States, government sponsored enterprises such as
the Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation are important issuers.
• In Europe, the main issuers are banks.
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15. Variations
• Capped FRNs
• Floored FRNs.
• Collared FRNs.
• Perpetual FRNs
• FRNs can also be obtained synthetically by the combination
of a fixed rate bond and an interest rate swap. This combinat
ion is known as an asset swap.
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16. Risk
• FRNs carry little interest rate risk. An FRN has a duration
close to zero, and its price shows very low sensitivity to
changes in market rates.
• FRNs differ from fixed rate bonds, whose prices decline
when market rates rise.
• Considered conservative investments for investors who
believe market rates will increase.
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17. Trading
• Traded over-the-counter.
• In Europe, most FRNs are liquid, as the biggest investors are
banks.
• In the U.S., FRNs are mostly held to maturity, so the markets
aren't as liquid.
• In the wholesale markets, FRNs are typically quoted as a
spread over the reference rate
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Market

18. Sleeping Beauty Bonds
• Bonds that are issued for 100 years i.e long term
• Coupon rate is fixed
• First issued by Walt Disney Company in 1993
• Hence called sleeping beauty bonds
• These bonds are to repaid in July 2093
• But these can be repaid anytime after July 2023 in par
or full
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19. Contd.
• Coca-Cola also issued 100 year bonds shortly after Walt
Disney issue
• But these we different from Walt Disney bonds
• Coca-Cola bonds weren’t redeemable after 30 years
• Risk associated- interest rate, liquidity, default risk
• What will happen to these bonds will be determined in
2023
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20. Thankyou…
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