MOV on Masala Bond
05, Sep 2018
Prelims level : Indian Economy Mains level : GS Paper III Indian Economy & Issues relations to planning, Mobilization of Resources.
- The Memorandum of Understanding (MoU) was signed by NSE London Stock Exchange Group on dual listing of masala bonds
- Under the pact, together LSEG (London Stock Exchange Group) and NSE (National Stock Exchange) will look to provide a route for masala bonds (rupee-denominated bonds) and foreign currency bonds of Indian issuers listed on London Stock Exchange to be dual listed on NSE’s International Exchange, NSE IFSC Ltd, in Gujarat International Finance Tech (GIFT)
- The pact also outlines the parties’ commitment to engage with growing companies, leading financial institutions and the broader SME community across the country to integrate them with the global ELITE community (London Stock Exchange Group’s international business support and capital raising programme for ambitious and fast- growing companies)
- Both also agreed to explore the launch of ELITE LSEG’s business support and capital raising initiative for small and medium enterprises in India in
- Through the approval of a single listing document, an issuer will be able to obtain a dual listing on London Stock Exchange’s International Securities Market and GIFT City, gaining access to an enhanced investor base of global institutions based in London, as well as domestic and regional investors registered on NSE
- Dual listing of masala bonds and foreign currency bonds of Indian issuers would enhance visibility, increase liquidity in secondary markets and enhance efficiency of price discovery for the bond issuers. It would also reduce the cost of raising capital for all issuers and encourage the participation of a wider variety of issuers in the masala bond market. It also underlines the strength of the economic and financial partnership between the UK and India, reinforcing London’s position as a complimentary and valued funding partner to India.
- Still now LSEG has listed 46 Masala bonds, which have raised an equivalent of more than $5 billion.
- The MoU signings demonstrate LSEG’s and NSE’s commitment to promoting the inter- connectedness between the UK and Indian capital markets, supporting global awareness of the opportunities that exist in India’s first international financial services centre, GIFT City, and championing the development of the country’s
- The ELITE global community is made up of over 900 private, ambitious companies from 32 countries and over 30 sectors. ELITE will bring a more in-depth and formalised process to help SMEs scale up their businesses and integrate them with the global ELITE community.
- Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets.
- Masala means spices and the term was used by International Finance Corporation (IFC) to popularise the culture and cuisine of India on foreign
- The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalise the Indian
- Masala bonds should have a minimum maturity of five years, and there is a $750 million per year limit for borrowers which can be exceeded with the RBI
- The bonds are directly pegged to the Indian currency. So, investors will directly take the currency risk or exchange rate
- If the value of Indian currency falls, the foreign investor will have to bear the losses, not the issuer which is an Indian entity or a corporate. If foreign investors eagerly invest in Masala Bonds or bring money into India, this would help in supporting the
- The issuer of these bonds is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign Besides helping in diversifying funding sources, the costs of borrowing via masala bonds could also turn out to be lower than domestic markets.
- Currently, these bonds are listed on the London Stock