GS 3: Economy
Why in News?
The state-owned Kerala Infrastructure Investment Fund Board (KIIFB) debuted its ‘masala bond’ issue of ₹ 2,150 crore on the London Stock Exchange.
- KIIFB became the first sub-sovereign entity in India to tap the offshore rupee international bond market.
- The secured fixed-rate bond has a five-year tenure with a 9.723 per cent coupon.
- The bond issue builds on the Kerala government’s focus to get multinational corporations to invest in the state, which has traditionally been known for its unfriendly business policies, bureaucratic delays and recurrent industrial strikes.
- As per Kerala state government, the proceeds from the bond issue are slated to be used to part-finance the rebuilding of infrastructure in Kerala that was devastated by 2018 floods.
- Masala Bonds are rupee-denominated bonds, i.e, the funds would be raised from overseas market in Indian rupees.
- According to RBI any corporate and Indian bank is eligible to issue rupee denominated bonds overseas.
- The money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.
- It also cannot be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.
- The rupee denominated bonds can only be issued in a country and subscribed by a resident of such country that is a member of the financial action task force (FATF) and whose securities market regulator is a member of the International Organisation of Securities Commission.
- The minimum maturity period for masala bonds raised up to rupee equivalent of USD 50 million in a financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years.
- RBI mandates that the money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.
- It also can’t be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.