SEBI warns of rising external debt risks as masala bonds surge

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The rupee-denominated bonds, popularly known as masala bonds, are likely to add to the nation’s external liabilities even if they don’t hold any risks to currency movement, a top SEBI official said.

The rupee-denominated bonds, popularly known as masala bonds, are likely to add to the nation’s external liabilities even if they don’t hold any risks to currency movement, a top Sebi official said on Wednesday.

“When money flows into the country from foreign investments, we are attracting some risks and it is not currency risk alone. Masala bonds don’t hold any currency risks but at the same time, the external liability of the country goes up. This needs to be kept in mind,” Sebi whole- time member G Mahalingam said here.

“And a huge amount of foreign inflows at a time when the currency has been substantially appreciating is something the regulators must be concerned about,” he said, addressing a capital markets summit organised by industry lobby Ficci.

The masala bonds are debt instruments through which designated domestic entities can raise funds by accessing overseas capital markets, while the bond investors hold the currency risk. In fact, the World Bank arm IFC thus far has raised the largest amount through this instrument.

According to some estimates, the masala bonds accounted for 39 per cent of the total ECBs of USD 7.39 billion reported by the Reserve Bank in the fourth quarter of FY17, while the approvals for the same rose to USD 2.9 billion over USD 0.8 billion in the third quarter.

For the full fiscal of 2017, the aggregate stood at USD 4.6 billion, according to a recent Icra data.

Of the total masala bonds of USD 4.59 billion approved during FY17, 55 per cent were for onward lending in domestic markets, 24 per cent for refinancing of the rupee loans and 14 per cent were for general corporate purposes.

Mahalingam said the Sebi is in advanced stage of talks with other regulators on allowing participation of FPIs in commodity derivatives market.

On the mutual fund industry, he said the sector should try to bring down its total expense ratio which is far higher than the comfort level. “It is time for mutual funds to shrink its margins attract more retail investors.”

He said benchmarking of returns will be healthy step for the overall industry.

Source: MoneyControl.com

India, UK set to sign GBP 1 bn biz deals

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India and the UK are expected to sign business deals exceeding GBP 1 billion (Rs 83,00 crore) during the three-day visit of British Prime Minister Theresa May, who is here on her first bilateral visit outside Europe since assuming office in July.

Describing her talks with Prime Minister Narendra Modi as good and productive, May said as leaders, they both were working to improve the livelihoods of their citizens creating jobs, developing skills, investing in infrastructure and supporting technologies of the future.Talking about Modi’s vision of smart cities, May said they have agreed on a new partnership that will bring together government, investors and experts to work together on urban development, unlocking opportunities worth GBP 2 billion for British businesses over the next five years.

This will focus on the dynamic state of Madhya Pradesh with plans for more smart cities than anywhere else and the historic city of Varanasi.

Four rupee-denominated bonds worth a total of 600 million pounds ($748 million) are expected to be listed in London in the next three months, Theresa May said.

The latest four bonds will provide financing to expand India’s highway and rail networks and meet its plans to boost energy efficiency and renewable energy, the government said.

They will be issued by Indian government-backed corporates Indian Railway Finance Corporation, Indian Renewable Energy Development Agency, Energy Efficiency Services Limited, and National Highways Authority of India by the end of January 2017. May said since July, more than 900 million pounds rupee-denominated bonds have been issued in London, equivalent of more than 70 percent of the global offshore market.

“This government will continue to work closely with both India and our financial services sector to ensure our growing rupee bond market continues to help finance India’s ambitious infrastructure investment plans,” May said in a statement. These rupee-denominated or masala bonds as they are called, unveiled in 2015, are an opportunity for Indian firms to raise money, while giving international investors access to higher yields in a zero-yield world.

They are also a way to borrow overseas, they are also an attempt to make the tightly-controlled rupee more widely available in global markets, similar to the way in which China has moved to sell more yuan debt to overseas investors. Alongside this, the UK has agreed to invest GBP 120 million in a joint fund that will leverage private sector investment from the City of London to finance Indian infrastructure.

Source: http://www.businesstoday.in/current/economy-politics/india-uk-set-to-sign-gbp-1-bn-biz-deals/story/239538.html

British Columbia first foreign govt to issue masala bond

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Canada’s Province of British Columbia has become the first foreign government entity to issue a masala bond by floating Rs 500 crore rupee denominated overseas bonds on the London Stock Exchange.

The bond raised $75 million (about Rs 500 crore) with 6.62 per cent semi-annual yield, securing high-quality investor support from across Europe, Asia and America. It is a AAA rated bond by the three major rating agencies and will mature on January 9, 2020, The Province of British Columbia said in a statement on Friday.

Masala Bonds are rupee-denominated bonds issued to overseas buyers, aimed at investments into India’s infra needs.

The proceeds of the bond were immediately reinvested in HDFC’s second masala bond listing on the exchange.

India’s mortgage lender Housing Development Finance Corporation (HDFC) had on Friday said The Province of British Columbia has subscribed the entire of its second tranche of Rs 500 crore rupee denominated overseas bonds.

“This transaction is a landmark deal as it opens up a new market for sovereign issuers and investors,” HDFC Ltd Chairman Deepak Parekh said in a statement on Friday.

“The pioneering simultaneous transactions on the LSE confirm RBI Governor Rajan’s recent statement that Masala bond issuances reflect ‘a coming of age of Indian debt’,” said Nikhil Rathi, CEO of London Stock Exchange.

The latest issuances bring the total number of masala bonds listed on the LSE to 33, raising the equivalent to about $3.86 billion for Indian infrastructure.

British Columbia Minister of Finance Michael de Jong said: “The international reputation and platform provided by the LSE sets the stage for more Masala bond issuances from around the world and will be most welcome for sustaining the Masala bond market’s success.”

HDFC Ltd, one of India’s leading banking and financial services companies, had listed the world’s first masala bond by an Indian corporate in July.

Source: http://www.business-standard.com/article/markets/british-columbia-first-foreign-govt-to-issue-masala-bond-116090200652_1.html

Brics bank may give first loans to India, China in their currencies

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The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.

The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.

The move is aimed at allowing the new multilateral agency headquartered in Shanghai to use a larger basket of currencies for lending and borrowing.

The NDB could raise funds by issuing rupee bonds in India or rupee-linked bonds overseas (masala bonds) for its rupee loans operations in the country.

In the past, the Asian Development Bank (ADB) has issued both domestic and overseas rupee bonds to finance projects in India.

The NDB, set up earlier this year, has an authorised capital of $100 billion. To start with, the it would begin with $50-billion subscribed capital, split equally among BRICS (Brazil, Russia, India, China and South Korea) countries.

It will scale up later by inducting more countries as members and raise resources from the market.

India, which needs $1-trillion investment in infrastructure in five years through 2017, could be one of the big beneficiaries of the new institution. The country is already the largest borrower of the World Bank and the ADB.

Even though NDB, sources said, is likely to give loans in local currencies to India and China, it would stick to US dollar as the default currency for raising funds from global markets as well in its lendings to countries. Exceptions will be made depending on the appetite for local currency loans in member countries, sources said.

With the process of operationalising the NDB (on the lines of the World Bank) gathering momentum, its board of directors met on November 20 to discuss and frame draft lending, borrowing and environmental policies for the bank before it commences operations in early 2016.

These norms will be ratified by the board of governors in March-April.

In the meantime, a pipeline of projects are being readied to seek the board of governors’ approval. India has already submitted three proposals including the Centre’s Green Energy Corridor and Grid Strengthening Project for evacuation power from renewable energy sources such as solar.

In this project, the NDB could be a co-financier along with the World Bank and the Asian Development Bank, sources said.

Two other projects sent to the NDB relate to a power project as well as an irrigation project in Rajasthan.

More projects will be sent to the bank after state governments submit their proposals to the Centre, sources said.

Source: http://www.financialexpress.com/article/economy/brics-bank-may-give-first-loans-to-india-china-in-their-currencies/171513/