* RBI sets minimum tenor and maximum coupon for offshore
By Krishna Merchant
SINGAPORE, June 12 (IFR) - New guidelines on offshore rupee
bonds will put the brakes on the growth of the Masala bond
market, according to debt bankers.
The Reserve Bank of India last Wednesday brought the Masala
bond market in line with existing rules on external commercial
borrowings in other currencies. As a result, Masala bonds must
have a minimum original maturity of three years, rising to at
least five years for deals over $50 million, and coupon rates
must be no more than 300 basis points over the government curve.
The changes temper earlier efforts to stimulate the growth
of the offshore rupee market, which allows Indian companies to
borrow overseas without taking currency risk, and have not gone
down well with market participants.
"The central bank is clipping the wings when the market was
just starting to take off," said a fixed income trader from a
In the past three months, Housing Development Finance
Corporation, National Highways Authority of India
and power generation company NTPC have all
sold Masala bonds, raising interest in the format.
While NHAI and NTPC sold five-year debt, the three-year
tenor has been popular for non-banking finance companies such as
HDFC, Shriram Transport Finance and Indiabulls Housing
"The new guidelines will affect the plans for housing
finance companies which were keen on raising Masala bonds above
$50 million for three years," said another DCM banker.
Most bankers feel the move will stall a market that was
already struggling to gain traction.
"It is a retrograde step for sure; it will kill the Masala
market further," said an executive director from a foreign bank.
"It will de facto rule out credit (corporate) borrowers,
non-sovereign and non-quasi-sovereign issuers."
The RBI said that the all-in-cost ceiling for Masala bonds
will be set at 300bp over the prevailing yield of the government
securities of corresponding maturity, in line with ECB rules.
None of the major Masala offerings have yet crossed that
threshold, but some smaller private placements had offered
higher yields, according to two DCM bankers.
RBI said that the Foreign Exchange Department will examine
all proposed Masala issues in future. The central bank also said
that investors should not be related to the issuer, raising
questions over some innovative structures that had allowed
Indian companies to access the global high-yield bond market.
For example, ReNew Power Ventures in February sold Masala
bonds to a Mauritius-based funding vehicle, Neerg Energy, which
used the notes as collateral for a $475 million offshore bond.
However, not all agree that the new RBI guidelines will have
a negative impact on the Masala market.
“There has been a decent appetite, and good issuers will
continue to tap the market,” said Ajay Manglunia, head of fixed
income at Edelweiss Capital. “Masala bonds will be well received
for the five-year maturity as well.”
(Reporting by Krishna Merchant; Editing by Steve Garton and