On Friday, the Kerala Infrastructure Investment Fund Board issued Masala Bonds to raise funds from the overseas market. While Indian companies have been raising debt from overseas markets for decades including through bond offerings, those borrowings have been denominated in dollar or other currencies. Masala Bonds, on the other hand, are rupee-denominated bonds i.e the funds would be raised from overseas market in Indian rupees. According to RBI FAQ, any corporate, body corporate and Indian bank is eligible to issue Rupee denominated bonds overseas.
While companies can raise funds through these bonds, there are limitations for the use of such proceeds. RBI mandates that the money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects. It also can’t be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.
Where can these bonds be issued and who can subscribe?
The Rupee denominated bonds can only be issued in a country and subscribed by a resident of such country that is a member of financial action task force and whose securities market regulator is a member of International Organisation of Securities Commission. While residents of such countries can subscribe to the bonds, it can also be subscribed by multilateral and regional financial institutions where India is a member country.
What is the minimum maturity of such bonds?
According to RBI, the minimum maturity period for Masala Bonds raised up to Rupee equivalent of USD 50 million in a financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years. The conversion for such bonds will happen at the market rate on the date of settlement of transactions undertaken for issue and servicing of the bonds, including its redemption.