Now, NTPC eyes masala bonds

Masala bonds are rupee-denominated bonds issued in capital markets abroad

After Indian Railway Finance Corporation (IRFC), state-owned NTPC is also considering raising funds through masala bonds, or rupee-denominated bonds issued in capital markets abroad.

An NTPC official said the company was planning to raise such bonds to part-finance its capital expenditure. Recently, the company’s board had approved a proposal to raise debt from foreign bond markets. “Depending on market conditions and requirement, the company will look at an offering of global rupee bonds soon, after the guidelines on this are notified,” the official said, adding discussions on the issue were in preliminary stages.

In November 2014, NTPC had carried out a $500-million medium-term note offering in international markets.

Bankers associated with debt issuances said while there was only one instance of masala bonds being issued, by International Finance Corporation, many Indian companies had started weighing such instruments. The process is, however, in an early stage, as the Reserve Bank of India (RBI) is yet to finalise rules allowing Indian companies to tap this route.

In November 2014, the International Finance Corporation had raised Rs 1,000 crore through 10-year rupee bonds. The bonds, rated AAA, had a yield of 6.3 per cent.

Such bonds are issued to foreign investors and settled in dollars; therefore, the currency risks are the investor’s. With masala bonds, Indian companies could blend their debt portfolios, optimise liability and cut costs.

In a research report last week, State Bank of India had said IRFC might be the first public sector undertaking to test this route, having secured board approval for a $1-billion offering. Many more entities are expected to join the league.

Early this week, infrastructure finance company IDFC had said it had approached the Reserve Bank of India to issue rupee-denominated bonds abroad.

Masala bonds could open a new pool of investors for Indian companies to tap. Initially, the benefits might be restricted to large and high-rated corporate entities, which have an established track record in foreign bond markets.

In its first bi-monthly monetary policy for 2015-16 in April, RBI had said a few international financial institutions were allowed to issue rupee bonds in foreign markets, subject to conditions. The central bank, in consultation with the Union government, proposes to expand the scope of such bond issues. The norms in this regard might be tweaked to allow Indian companies to raise external commercial borrowings through rupee bonds issued abroad.