Masala Bonds Go Greener

Masala bonds--offshore rupee-denominated bonds--are increasingly tapped to fund private sector development of "green" technologies and other investments combating climate change.

Introduced just a year ago, “green” masala bonds—offshore rupee-denominated bonds to fund private-sector investment addressing climate change—are hot.

Housing Development Finance Company, the Mumbai-based financial services firm that owns HDFC Bank, mopped up $450 million through green masala bonds listed on the London Stock Exchange in early August, the first such listing post-Brexit. The three-year-maturity bond with an annual yield of 8.33% was more than four times oversubscribed. HDFC has plans for a second offering, of $300 million.

Moody’s Investors Service recently maintained rupee-denominated paper is “credit positive,” adding that the HDFC issue “will help set benchmark pricing.” Fitch Ratings concluded that these early successes “could encourage other Indian issuers to go to the market,” while noting that “likely only the large, well-known and better-quality issuers will tap the market in the near term.”

The public sector certainly wants in. In April, India’s Power minister announced that public corporates would soon list $1 billion worth of masala bonds in London. Indian Railway Finance Corporation, Power Finance Corporation and Rural Electrification Corporation are among the public corporates considering green masala bonds. The state-run power utility, NTPC, mobilized $300 million on August 3 at 7.48% with a five-year maturity bond—also oversubscribed—and dual listing on the London and Singapore stock exchanges.

Standard & Poor’s has projected Indian companies will raise close to $5 billion through masala bonds in the next three years. Looking down the pipeline, they may surpass this target much sooner.