Masala bond issuance on the rise: Icra

Housing finance & asset financing non-bank companies emerged as leading borrowers

In the fourth quarter of the last financial year, 39 per cent of overseas funds worth $7.39 billion was through rupee-denominated bonds (RDBs) or masala bonds.

 

Since these bonds are raised in rupee, the issuer of the bonds doesn’t have to bear any exchange-rate risk and therefore the country as a whole gets into a safer zone as far as its overseas commitments are concerned.

 

“The trend of increasing RDB issuance is hence positive for such borrowers, not only from the risk aspect but also from the pricing perspective. This opening up of an alternative borrowing channel and diversity in investor base is positive for Indian companies,” said Karthik Srinivasan, group head, financial sector ratings, ICRA Ltd, in a note.

 

According to ICRA, some of the recent masala bond issuances have been priced at all-in-cost levels comparable to similar tenor bonds issued by these companies in domestic markets.

 

“Given the attractiveness of RDBs, the growth in such issuances is expected to dampen issuances of foreign-currency-denominated external commercial borrowings (ECBs),” ICRA said in the note.

 

Overall foreign-currency-denominated ECB issuance declined to $17.4 billion in 2016-17 from $24.4 billion in 2015-16. The approvals for RDBs surged to $2.9 billion (Rs 19,120 crore) during the fourth quarter of 2016-17 from $0.8 billion (Rs 5,570 crore) in the third quarter of 2016-17, and stood at an aggregate $4.6 billion (Rs 30,620 crore) during the full 2016-17.

 

According to ICRA, housing finance and asset financing non-bank companies have emerged as leading borrowers via masala bonds. Of the total $4.59 billion of masala bonds, 55 per cent was for onward lending in domestic markets, 24 per cent for refinancing of rupee loans, and 14 per cent for general corporate purposes. The average tenor of these bonds was five years and one month, ICRA said.