The International Finance Corporation (IFC), a member of the World Bank Group, has launched Masala bonds worth $1 billion to fund its rapidly-expanding investment activities in India.
About:
Masala bonds are essentially bonds issued by Indian companies, denominated in rupees, to overseas investors to attract funds for projects, especially in infrastructure.
They are different from dollar bonds as In Dollar bonds, the borrower takes the currency risk. But in Masala bonds, the investors bear the currency risk.
History of Masala bonds:
The first Masala bond was issued by The International Finance Corporation (IFC), the private arm of the World Bank, in 2014 to fund infrastructure projects in India. Masala, a Hindi word, means spices was used by IFC to evoke the cuisine and culture of India.
In August 2015 IFC issued green Masala bonds to fund climate change initiatives in India.
In September 2015, the Reserve Bank of India (RBI) issued guidelines for Masala Bonds.
In July 2016 HDFC became the first Indian company to issue Masala bonds. It raised Rs. 3,000 crore rupees from Masala bonds.
Need of Masala Bonds:
Indian corporates have for long borrowed in international credit markets — in the form of loans and bonds, and in various foreign currencies. This always came with the risk of the company having to pay more while repaying its debt.
By issuing bonds in rupees in the overseas markets, the risk is transferred to investors who sign up for that, taking into account the growth prospects of the country and the issuing company.
From the issuer’s perspective, it means cheaper borrowings compared to raising funds in India besides diversifying its sources of fund-raising.
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