Standard & Poor’s: Indian companies could raise up to USD 5 billion over the next three years

Indian firms could raise as much as USD 5 billion over the following three years through problem of masala bonds or offshore rupee, but success of the recent instrument is determined by competitive pricing and attractive yields, a report said.

Indian firms could raise as much as USD 5 billion over the following three years through issue of masala bonds or offshore rupee, but success of the recent instrument is determined by competitive pricing and attractive yields, a report said.

Masala bond issuances possess the capacity to reach USD 5 billion over the following two to three years when Indian companies overcome these challenges,” it said.

The nascent market for rupee-denominated foreign bonds holds great promise for diversifying the capital for issuers that are Indian, S&P noted.

In September, RBI had permitted non-banking finance companies (NBFCs) as well as other corporates to issue masala bonds and supply an easy method to boost funds abroad to these issuers.

Masala bond can be used to reference an instrument whereby international resources can be raised by Indian businesses in rupees, not foreign money.

HDFC Ltd, the biggest mortgage lender, has declared its plans to sell up to USD 750 million abroad.

“Issuer creditworthiness, India’s economic growth tendency, and investors’ perspective of currency risk will all play equally significant parts in the development of masala bonds, given the moderate-to-long term tenor of the instruments,” S&P said.

The report notes that issuers may reap the benefits of diversification of the long-tenor capital, more extensive use of net income, and changing of the currency risk.

Investors may also reap the benefits of a more straightforward financing construction, lack of a cost limit that is hard, and exemption from capital gains tax.

Masala bonds will enable more financial businesses, including home businesses, to qualify since the central bank has enabled a more extensive use of the net income to borrow.