From now, companies can only issue masala bonds post RBI dept nod

The Reserve Bank of India (RBI) on Wednesday said its forex department will henceforth examine proposal of companies before they can issue masala bonds to raise funds from overseas markets.

The changes come as part of RBI's norms on external commercial borrowings (ECBs), trade credit, borrowing and lending in foreign currency.

"On a review of the laid down framework for issuance of rupee denominated bonds overseas (masala bonds) and with a view to harmonise the various elements of the ECB framework, it has been decided that any proposal of borrowing by eligible entities by issuance of these bonds will be examined at the Foreign Exchange Department, Central Office, Mumbai," RBI said in a notification.

Masala bonds are catching up fast as a source of raising fund from overseas markets, including those by state-owned companies like Nhai and NTPC.

Besides, RBI has also revised provisions for maturity period, all-in-cost ceiling and recognised lenders (investors) of masala bonds.

For bonds up to $50 million per financial year, the maturity period will be three years and for bonds raising over $50 million (equivalent in Indian rupee) per financial year should be five years.

Earlier, the minimum maturity period was of five years.

"The all-in-cost ceiling for such bonds will be 300 basis points over the prevailing yield of the government of India securities of corresponding maturity," said the notification.

For recognised investors, RBI said, the entities permitted as investors should not be related party.

A recognised investor is any entity from a Financial Action Task Force (FATF) compliant jurisdiction.

"The changes/revised instructions in respect of issuance of Rupee denominated bonds will be applicable from the date of issuance of this circular," it added.

In 2015, Reserve Bank had permitted Indian entities to issue rupee denominated bonds in foreign markets, popularly termed as masala bonds, so as to access capital from even outside destinations.