MASALA BONDS --- by International Finance Corporation (IFC) : what are these Masala Bonds? A rupee-denominated bonds issued by the Indian entities to raise money from overseas markets. Rupee-denominated bonds-- means that the money borrowed will be only in Indian rupees. Example- Suppose some India entity issues a 10 cr masala bond and promised to pay 11cr in next year and a foreign investor will lend the dollar equivalent of Rs 10 crores & after a year, the Indian entity will return the dollar equivalent of Rs 11 crores. Now what is the advantage ? The advantage is -- currency risk. Since the Indian entity will return the dollar equivalent of Rs 11 crores, this means that if in a year if there is any fluctuation in the currencies whether large or small, the risk lies with the overseas investor and not the Indian entity. Some Points : - minimum maturity period is --3 years & can be issued for 3 or 5 or 7 maturities. - This is the first rupee bonds listed on the London Stock Exchange. -first Masala bonds were issued on 10 November 2014 under IFC's $2 billion offshore rupee program. -How its different from External Commercial Borrowings (ECB) ? In ECB the currency risk lies with the-- Indian issuer & in case of masala bonds, the currency risk lies with the overseas investor . -Though currency risk lies with the foreign investor, but overseas investor has also many advantages like they have very few investment options in other countries due to weak economic conditions globally so its a better option to invest.
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