Re-denominated overseas debt to help companies avoid currency risks; $6 billion expected to be raised soon

MUMBAI: A number of infrastructure companies, including some major private players, are looking to sell masala bonds, as they seek to reduce the risks associated with external commercial borrowings by moving to this rupee-denominated overseas debt that also comes with easier conditions.


As much as $6 billion (about Rs 40,000 crore) could be raised through masala bonds in the coming few months by Indian businesses, say industry trackers. Companies such as SREI Infrastructure Finance, GVK and GMR are some of the private infrastructure players that could be exploring the scope for raising funds through this route, people with knowledge of the plans said. Besides other benefits, the cost of borrowing could also be lower in masala bonds compared with domestic corporate bonds.

GVK and GMR didn’t respond to emails seeking comments at a short notice. SREI said it will examine the option. Most of these players are closely monitoring the response to the plans of the big boys, such as HDFC, NTPC and Power Finance Corp, which are currently gauging investor interest for these bonds.

“We are seeing a lot of corporates exploring masala bonds to replace their existing foreign currency loans (ECBs), or looking at a fresh issue, as masala bonds have liberal end-use conditions as compared to existing ECBs,” said Hemal Zobalia, senior director at Deloitte India. “Many infrastructure companies are looking at masala bonds as a new avenue of raising overseas funds without bearing the foreign currency fluctuation risk.” There are no restrictions on the use of the funds raised through masala bonds.

Many infrastructure companies that have raised money abroad through ECBs are exploring masala bonds now as the rupee’s steep fall against the dollar has increased their debt exposure and interest outgo in local currency.

“Masala bonds relieve you of currency risk, which is there in ECBs with a cost,” said Sunil Kanoria, vice-chairman and managing director of SREI Infrastructure Finance.

“We will examine this fundraising option in coming months based on initial issuer responses,” he added. “Good corporates could raise money at a good rate by selling such bonds to offshore investors as the infrastructure sector will have substantial demand pickup going forward.” The sector has, of late, started moving at the ground level, he said.