This presentation describes what are masala bonnds, benefits of these bonds, issuance of masala bonds, companies who issued and planing to issue masala bonds and Factors at play,

1. MASALA BONDS
Submitted by
Dheeraj Yadav
Kanika Govil
Moh Avvab Kureshi
Nitya Gupta
Reena Poriya

2. WHAT ARE MASALA BONDS?
 Masala bonds are bonds issued outside India but
denominated in Indian Rupees, rather than the local
currency
 IFC issued a 10-year, 10 billion Indian rupee bond in
November 2014 to increase foreign investment and
infrastructure development in India. IFC named it
Masala bond to give local touch.
 Masala bond was the first Indian bond to get listed in
London Stock Exchange.

3.  Masala bond is a term used to refer to a financial
instrument through which Indian entities can raise
money from overseas markets in the rupee, not foreign
currency.
 These are Indian rupee denominated bonds issued in
offshore capital markets.
 Some of the corporates already announcing its interest
in raising fund abroad like HDFC, IRFC and NTPC
 Masala term was used by IFC to evoke the culture and
cuisine of India. Unlike dollar bonds where the borrower
takes the currency risk, masala bond investors will bear
the risk

4.  The first Masala bond was issued by the World
Bank backed International Finance Corporation in
November 2014 when it raised 1,000 crore bond to fund
infrastructure projects in India.
 In August 2015 International Financial Corporation for
the first time issued green Masala bonds and raised
Rupees 3.15 Billion to be used for private sector
investments that address climate change in India.
 In July 2016 HDFC raised 3,000 crore rupees from
Masala bonds and thereby became the first Indian
company to issue Masala bonds.
 In the month of August 2016 public sector
unit NTPC issued first corporate green masala bonds
worth 2,000 crore rupees.

5. BENEFITS OF MASALA BONDS
 It helps Indian companies to diversify their bond portfolio.
 It helps Indian Companies to cut down cost. In India any
bond carries interest rate of 7.5% to 9% whereas Masala
bonds issued outside India is issued below 7% interest
rate.
 It helps the Indian companies to tap a large number of
investors as this bond are issued in the offshore market.
 Companies issuing masala bonds do not have to worry
about rupee depreciation, which is usually a big worry
while raising money in overseas markets.

6.  An investor will benefit from his investment in masala
bonds if the rupee appreciates at the time of maturity.
 If the rupee weakens by the time the bonds come up for
redemption, the borrower (company) will need to shell
out more rupees to repay the dollars.
 An offshore investor earns better returns by investing in
Masala bonds rather than by investing in his home
country.
 Risk will be borne by the foreign investor, whereas
the Indian issuer does not face currency risk

7. MASALA BOND RULES
 As per RBI guidelines not only corporates but also real
estate investments trusts and infrastructure investment
trust are eligible to issue these bonds.
 These bonds can be privately placed or listed on
exchanges as per host country regulations.
 These bonds will be issued for a minimum maturity
period of five years.
 The proceeds from these bonds can be used for all
purpose expect real estate activities.

8. HOW FOREIGN INVESTOR GAIN…?
 The interest rate offered on the bonds have a cap set by
RBI.
 For a 3-5 years bonds issue, the rate has a cap 350
basis points over LIBOR. While for issue of more than
five years the cap is at 500 basis points.
 Interest rate in most countries abroad are low and
masala bonds can therefore provide better alternative
for them to earn high interest.

9. ISSUE OF MASALA BONDS
 Masala bonds are rupee linked bonds, issued to
offshore investors but the settlement happens in dollar
terms
 The rupee bond guidelines allows in addition to
companies any corporate body, NBFC, real estate
investment trust, infrastructure investment trust which is
subject to the regulatory oversight of the SEBI is also
eligible to issue Masala Bonds.
 An issuer can issue masala bonds worth a maximum
$750 million a year.

10. COMPANIES WHO ISSUED AND PLANNING TO
ISSUE MASALA BONDS
Name of the company Issue size
o International finance corp. 1370 Core INR
o HDFC $ 750 million*
o Yes Bank $ 500 million
o NTPC $ 500-750 million*
o Power finance Corp. $ 500-750 million*
o IRFC $ 300-500 million*
Source: news reports & advise Sure

11. FACTORS AT PLAY
 The success of Masala bonds will be hedging cost.
 The rupee dollar equation plays an important role and its
stability will give foreign investor more confidence to
invest.
 Investors would need to keenly watch the credibility of
the issuer.
 Higher the credit rating of a firm, the better would be the
appetite for their issues.
 Since the currency risk is on the investors, they will like
the rupee to be stable.

12.  But these bonds can have bad after-effects too if
companies decide to binge on them.
 As of December 2014, corporate overseas borrowings
stood at $171 billion. The recent turmoil in the rupee is
already prompting caution on existing foreign loan
exposure.
 Some reports estimate that Indian corporates, are likely
to issue about $6 billion worth of Masala bonds this
fiscal. With our economy still on shaky ground, too much
reliance on external debt (even in rupees) can weigh
heavily on our rating by global agencies.

13. THANK YOU