MASALA BONDS LISTED AT LSE
18, May 2019
Prelims level : Mains level : GS-III Technology, Economic Development, Environment, Disaster Management
Why in News:
- Kerala becomes first sub-sovereign entity in country to access global market
Background: / Kerala masala bonds:
- The State has turned out to be the first sub-sovereign entity in the country to access the international market by listing masala bonds issued through its
- off-budget mechanism, the Kerala Infrastructure Investment Fund Board (KIIFB).
- Chief Minister Pinarayi Vijayan has become the debutant head of state in the country to open trading at the London Stock Exchange.
- KIIFB has raised ₹2,150 crore through masala bonds at a fixed interest rate of 9.723% per annum.
- The resources earned through the bonds would be channelised for funding a clutch of infrastructure development projects cleared by the KIIFB director board. KIIFB had decided to garner ₹3,500 crore from the international market in the initial phase. It plans to list the bonds at the Singapore stock exchange too.
What is Masala bond:
- Masala Bonds are rupee denominated bonds issued for funding Indian companies using foreign investor’s money.
- They are issued by International Finance Corporation (IFC )- a part of World Bank Group.
What is so special about them?
- Since these bonds are rupee denominated, burden of debt repayment due to fluctuating of currency falls on funders and hence Indian companies are expected to benefit from them.
How they help in meeting housing and infrastructure development
- Indian construction companies have big problems in getting domestic capital and it is a big challenge for getting foreign investor to come to India.
- Therefore, funders can buy bonds in their own stock exchange (London stock exchange , in this case ) without facing hassle to register here first
- Since denomination ensures good profit to Indian companies, this would create a healthy environment for other infrastructure companies to follow suit too and provide for necessary capital for Housing for all.
- Though Real estate bill, prevention of corruption act and black-market bill will help in suspicious money to be reduced to large extent, much more needs to be done to boost consumers and investors’ confidence