You know Brook Bond, James Bond but do you know Masala Bonds? Well, I am not talking about Indian spices used for making food items. I am talking about financial instrument available in the market. You might be aware of the news that HDFC has launched Masala Bonds. So, what is Masala Bonds? Who can invest in Masala Bonds? How these bonds are beneficial to Indian Investors?
What are Masala Bonds?
Masala Bonds is the name given to financial instrument used to raise money from the overseas market by Indian companies. The Masala Bond raises money in Indian currency rupee and not in foreign currency. Masala bond is also known as a “Rupee Denominated Bonds or Rupee denominated borrowings”.
Features of Masala Bonds
- Masala bond is issued and listed in overseas market such as London Stock Exchange, New York Stock Exchange.
- This bond is issued via IFC (International Finance cooperation) investment arm of World Bank.
- The interest rate offered by this bond is less usually 6%.
- These bonds are issued for 10 year time period.
- Settlement of this bond happens in dollars.
Why name Masala Bonds?
As such there is no logic behind giving name Masala bond. This name is given to spread Indian culture and cuisine all over the world. There is no relation between this bond and food. The inspiration behind this name is other countries where the name of the bond is given after food and culture like “dim sum” bond of China and “Samurai” bond of Japan.
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Who can invest in Masala Bonds?
Foreign investors who don’t want to expose themselves directly to Indian market they can invest via Masala Bonds. The Masala Bond is made for foreign investors. Foreign investor earns better returns on this bond rather than investing in his own country.
If an investor invests in his home country US, the bond yield is hardly 2% whereas rupee denominated masala bond will give them 5-7% return.
Benefits of Masala Bonds –
Indian Corporate
- They can borrow money at low interest rates from offshore market.
- Foreign exchange risk will be borne by investors.
- They can access wide investor base and tap money from outside India.
- This bond will help them in the diversification of the portfolio.
Investors
- Investor can earn more money as interest rate of masala bond is higher compare to developed country.
- As settlement is done in US $ investor will get benefit of rupee appreciate against dollar.
- Masala bond will help in building up foreign investors’ confidence in Indian economy and currency which will strengthen the foreign investments in the country.
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How it will be beneficial to Indian Investor?
As Masala Bond is issued with lower interest rate, it helps Indian companies to reduce its interest cost component on debt and it will give positive impact on balance sheet of company.
In addition to that amount raised from this bond will be used for infrastructure development and business expansion. An increase in business operation means growth in the future earning potential of the company.
So, you can clearly say company issuing Masala Bonds will be the right candidate for making an investment. You should purchase shares of such companies. HDFC is raising money using masala bonds so it is advisable to purchase stock of HDFC.
