Asian Development Bank (ADB) has listed its 10-year masala bonds worth ₹850 crore on the global debt listing platform of India INX.
More about the news
- This is the first time a foreign issuer and a supranational is doing a primary listing with India INX.
- ADB’s masala bonds are listed on both Luxembourg exchange and India INX.
Masala Bonds or Rupee Denominated Bonds
- A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements are denominated in rupees.
- The peculiarity of rupee denominated bond is that buying of bonds, interest payments and repayment all are expressed in rupees.
- All payments are converted into corresponding dollar values at the time of payment.
- The term ‘masala bond’ is also used to describe rupee denominated ever since the first issuer of rupee-denominated bonds used the name masala bonds in its first issue.
- The International Finance Corporation (IFC) – a World Bank affiliate is the first major issuer of rupee denominated bonds in the name tag of ‘masala bonds ‘in 2014.
How the masala bonds works?
- As Masala bonds are issued directly in Indian rupees, the investor needs to bear the exchange rate risks.
- Rupee rate falls will not affect the issuer of Masala Bonds, AsMasala Bonds are rupee-denominated bonds, and therisk goes directly to the investor.
- Investors from outside of India who would like to invest in Indian assets can invest in Masala bonds.
Why the masala bonds are attractive for foreign investors?
- For a foreign investor, the rupee denominated bonds is attractive as it will give him higher interest rate compared to the standard interest rate prevailing in their markets.
- On an average, the rupees denominated bonds have an interest rate of 2 to 3 % higher compared to the standard LIBOR (London Interbank Offer Rate).
- And it will encourage foreign buyers to deal more in rupees hence; internationalization of rupee can be promoted by rupee denominated bonds.
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