‘Masala bonds will have to wait for market stability’

Canadian province says recent volatility in global markets has affected India

March 23, 2016 12:00 am | Updated 05:47 am IST

he global market volatility and currency fluctuations have hit the issuance of masala bonds (rupee denominated bonds). The government of British Columbia, a province of Canada, is keeping a close watch on the situation as it plans to raise $150 million through this route, a top official said.

Michael de Jong, Minister of Finance for the province said in an interview: “Recent volatility in the global markets has affected emerging markets such as India. We continue to keep a close eye on this, and once stability returns, we will consider issuance. We anticipate it is not too far away and believe India, as the fastest-growing economy in the world, and the masala bond market will be an early beneficiary.”

A slew of Indian firms like HDFC Ltd and Indian Railway Finance Corp had lined up masala bond issues, but have not been able to raise funds due to the global volatility. Last year, the Reserve Bank of India had issued guidelines allowing Indian firms, non-banking finance companies, infrastructure investment trusts, and real investment trusts (investment vehicles that pool money from various investors, and invest in infrastructure and real estate sectors), to issue rupee-denominated bond overseas.

“Emerging markets such as India’s masala market have been impacted by recent instability in the global marketplace. Similar to other emerging currencies, this has led to investors selling their rupee investments, which has adversely affected new masala issuance,” Mr de Jong said.

However, he said, forecasters predict India to lead the world in economic growth this year, and “when stability returns, we expect the masala bond market to be one of the first to benefit. We are confident the masala bond market will bounce back and see early signs of global markets stabilising.”

In December 2015, Mr de Jong had meetings with Indian government officials and regulators, regarding the issue of masala bonds by the province.

“We have continued discussions with India’s Ministry of Finance and expect to hear something definitive in the near future. Our recent meeting in Mumbai with the Reserve Bank of India and Securities Exchange Board of India were constructive, and affirm there is mutual interest in the prospect of a masala bond from British Columbia. We are encouraged and will continue work on this initiative,” he said.

If the issue comes through, British Columbia would be the first foreign government to come out with an issue in the masala bond market.

The province is considering various options for use of the bond proceeds, one of which is invest onshore in India. “The investments made through province’s pension fund manager BC Investment Management Corporation, who is licensed as a ‘foreign portfolio investor’,” according to Mr de Jong.

One of successful issuers of masala bonds has been World Bank’s arm International Finance Corp. Recently, it had raised Rs 200 crore through 15-year masala bonds, the first such long-term rupee bond issuance in the overseas market. It was the third masala bonds issuance from IFC, which has raised a total of Rs 11,000 crore by issuing such bonds with tenures ranging from three to 15 years.

We are confident the masala bond market will bounce back and see early signs of global markets stabilising

Michael de Jong,

Finance Minister, British Columbia

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