1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sectors.
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: c
Explanation:
What are Masala Bonds?
Bonds are instruments of debt – typically used by corporates to raise money from investors. Masala Bonds are the rupee-denominated bonds issued to overseas buyers to raise money by the Indian corporates. The price of the bond is denominated in Indian currency. However, at issuance of Masala Bonds, investors pay USD amount equivalent to INR principal determined at the market exchange rate on the date of transactions undertaken for issue and servicing of the bonds.
International Finance Corporation (IFC), the investment arm of the World Bank, in November 2014, issued a ₹1,000 crore bond to fund infrastructure projects in India. These bonds were listed on the London Stock Exchange (LSE). IFC then named them Masala Bonds to give an Indian identity
Benefits of Masala Bonds
a) Masala Bonds can help Indian companies to diversify their bond portfolio in addition to corporate bonds and ECBs.
b) Masala Bonds can help Indian companies to cut down cost. If the company issues any bond in India, it carries an interest rate of 7.5%-9.00% whereas, Masala Bonds outside India is issued below 7.00% interest rate.
c) Masala Bonds can help the Indian companies to tap a large number of investors as these bonds are issued in the offshore market.
d) Masala Bonds will help in building up foreign investors’ confidence in Indian economy and currency which will strengthen the foreign investments in the country.
e) An offshore investor earns better returns by investing in Masala Bonds rather than by investing in his home country, because the bond yield in his/her home country may be very low (for example bond yield in the US is hardly 2% as against minimum assured Masala Bond yield of 5% to 7%). The investor will also potentially benefit if the rupee appreciates at the time of maturity, but may lose if rupee depreciates.
f) Masala bond will make available more of foreign funds for infrastructural development in India.
g) Masala Bonds will also help enhancing internationalisation of Indian Rupee
Hence, Both 1 and 2 are correct