With two companies raising Rs 5,000 crore via offshore masala bonds in the last month, global ratings agency Fitch has said it will help diversify funding for India Inc, especially non-banking finance companies.
“The recent issuance of the first offshore masala bonds by domestic companies could pave the way for a broader opening and development of the market,” the agency said today in a note.
Even though the instrument is in its infancy, the two recent issues by mortgage major HDFC and state-run NTPC will mitigate initial market concerns about liquidity, it said, adding the issuance also helped both the companies get better ratings.
The bond pricing was surprisingly competitive relative to onshore funding considering uncertainty over liquidity and currency risks, it said, adding this will prod other corporates to go to the market.
It can be noted that HDFC raised Rs 3,000 crore by issuing three-year bonds, while NTPC raised Rs 2,000 crore in a ’green’ masala bond issue.
The domestic banks-dependent non-banking financial institutions could particularly benefit from offshore rupee financing, it said, adding even if they come at a higher price, such companies will raise the money as it gives them an opportunity to diversify funding base.
Electricity utilities with assets operating under a regulated return-on-invested capital model, such as NTPC and transmission utilities, were also listed as “likely candidates” by the agency.
“Foreign investors take currency risk when buying masala bonds; the limited offshore liquidity in rupee, cost and availability of hedging, and investors’ view of exchange rate movements will affect pricing,” it said.
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