Fullerton India plans to raise funds via masala bond sale

MUMBAI: Fullerton India Credit Co, the nonbanking finance company controlled by Singapore government’s $178-billion investment arm Temasek Holdings, plans to raise rupee funds by selling masala bonds as it seeks to diversify its sources of funds, a company official said.

Anand Natarajan, head of strategy at Fullerton, said selling masala bonds will offer the company an opportunity to diversify its source of funds, provided the bonds are priced competitively, including potentially absorbing withholding taxes.

Masala bonds are rupee-denominated bonds sold to investors and are listed on overseas stock exchanges. Indian institutions are not permitted to buy them, and foreigners can’t sell them in local markets.

"Investors have approached us with an interest to buy these bonds and we will tap these markets when the timing is right. The issue size will need to be reasonable to absorb the costs of issuing and listing these bonds," Natarajan said.


Fullerton is likely to raise $50- $100 million for three-year tenure to be listed in Singapore later this year. However, the 5 per cent withholding tax could be a roadblock because it will increase the cost of the issue.

"Fullerton has strong foreign parentage but the business is Indian, which means that investors could see this as a good combination of high yields and a strongly rated company. The only hitch is whether the company would be ready to pay a premium for illiquidity of these bonds and extra cost for the withholding tax," said a banker.

Of the total Rs 10,712 crore funds borrowed by Fullerton in FY16, a majority of funds (Rs 5,415 crore) were borrowed from banks, followed by Rs 3,589 crore in domestic corporate bonds. In the last four years, the firm has reduced its exposure of personal loans, which now consists of 34 per cent of the Fullerton’s loan book versus 61 per cent in March 2012.