Bobby Ladwa and Niloufer Lam explore why masala bonds may be too spicy for investor appetites

A“masala bond” is an Indian rupee denominated bond listed outside India and sold to investors outside India. Globally, there have been several debt instruments which are either issued by onshore issuers and denominated in the domestic currency but payable in US dollars and sold to investors offshore, or listed outside of the home jurisdiction. These have been mainly used to provide issuers with access to alternative markets for capital raising.

002The name of the bonds immediately conjures up its country or issuance. We have seen dim sum bonds from Hong Kong, samurai bonds from Japan, kangaroo bonds from Australia and bulldog bonds from the UK. In 2013-14, the International Finance Corporation (IFC) completed two similar transactions: a ₹20 billion (US$300 million) rupee denominated US dollar settled bond issue in two tranches listed on the London Stock Exchange and the Singapore Exchange through their international global medium-term note programme (the original masala bonds); and a ₹6 billion issuance of domestic bonds in four tranches listed in India (maharaja bonds). This was significant as in the current economic environment it signalled IFC’s support for India and set a benchmark for pricing – albeit above the Indian sovereign ceiling rating of BBB- internationally.

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Bobby Ladwa is a director of legal at Barclays Bank in Hong Kong. Niloufer Lam is a partner at Cyril Amarchand Mangaldas in Mumbai. They can be reached at [email protected] and [email protected]