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Masala Bonds Can Be New Funding Source For Indian Companies: IFC

By Religare

International Finance Corporation (IFC) has said that offshore rupee bonds can provide a new source of funding for Indian companies and they stand to benefit in the longer term from comparative pricing landscape, as per the media reports.

Stating that no Indian company has so far come out with offshore rupee bonds, IFC Vice President and Treasurer Jingdong Hua said that various factors, including unfamiliarity with the market and cost, could be behind their reluctance to tap this route, said the PTI report.

Masala Bonds Can Be New Funding Source For Indian Companies: IFC
Part of the World Bank Group, IFC has been issuing offshore rupee bonds better known as 'Masala Bonds'. In March, it issued such securities worth USD 30 million (Rs 199.6 crore) having 15-year tenure - the longest-dated offshore rupee bond.

Hua said offshore rupee bonds can "really open up a new source of financing for companies".

So far, Hua said Indian companies have not come out with their Masala Bonds issue as they are "very conscious about funding costs" and go for the domestic market to raise funds.

"There is a small gap between interest rates of offshore and onshore bonds. The difference is not big, it is anywhere between 40-80 basis points. This is where I think Indian companies are very conscious about funding costs and they want to go for cheaper ones, which is the domestic market," Hua added.

"My advice (to Indian companies) is that 40-80 basis point difference is well within the margin of supply and demand rather than a prohibitive constraint between onshore and offshore (bonds)," Hua said.

According to him, over 40 basis points is a very small price to pay to open up a new avenue of financing. "In the longer term I think the companies issuing offshore bonds will benefit from comparative pricing landscape," he added.

To a query on the possible reasons for Indian companies seeming to be reluctant to raise funds through offshore rupee bonds, Hua said one reason could be unfamiliarity with the market. Besides, the concern about cost is a pre-dominant one and then there is withholding tax, he noted.


Expressing hope that Indian corporates would come out with Masala Bonds, Hua also said it is a unique opportunity.

Read more about: masala bonds ifsc
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