Following the footsteps of HDFC's masala bonds, or rupee-dominated offshore debt, India’s largest power group NTPC has raised $299 million and added a twist to what is only the second deal in the sector by designating the issuance “green.” Masala bonds have been touted by bankers as well as by New Delhi as a new funding channel for Indian business. However, their higher borrowing costs - a result of Indian tax laws - had deterred issuers until Housing Development Finance Corporation broke the ice last month.
State-backed NTPC, which originally looked to raise Rs10 billion, sold five-year bonds to yield 7.48 per cent, attracting demand totalling Rs 29 billion. Sixty investors were involved, up from the 40 that participated in HDFC’s three-year deal.
“It is a very new market and the deal was checking a box by extending market tenor to five years,” said Ashish Malhotra, global head of bond syndicate at Standard Chartered, who said Indian companies were increasingly weighing the feasibility of the masala market.
“We’re also seeing secondary market liquidity emerging - that had been a concern among investors,” he added. The deal’s green credentials will not have hurt. The label means the proceeds will be invested in “green” areas - in this case, renewable energy development.
Borrowing via green bonds globally has already reached $41bn this year, according to Dealogic - surpassing last year’s full-year total. Growth in issuance from emerging markets borrowers accounted for $21.8 billion of that - more than four times last year’s total.
For Indian borrowers NTPC’s deal is particularly important in light of the country’s small, illiquid domestic market. Outstanding corporate bonds in India amounted to less than one-tenth of gross domestic product in 2014, compared with 46 per cent in China and 88 per cent in South Korea, according to the International Organisation of Securities Commissions.
The offshore issuance of rupee bonds is back in the spotlight after a much-needed boost last week.
Investor concerns about currency risk attached to masala bonds have been mitigated by India’s improved economic fundamentals in the past two years: inflation has been much lower and less volatile, and both fiscal and current account deficits have narrowed.
