Masala Bonds – Explained

Masala Bonds – Explained


What are masala bonds?

Masala bonds are Indian Rupees (INR) denominated debt instruments that are issued outside India. Since these bonds are issued outside of India, they are settled in US dollar (USD).

The unique feature of masala bonds is that the currency risk is borne by the bond investor, not the bond issuer. This means that a masala bond investor’s return will be lower/higher than the stated yield if the INR depreciates/appreciates against the US dollar (USD) during the lifetime of the bond.

Who issues masala bonds?

Masala bonds are typically issued by Indian entities that are looking to raise debt in the overseas market. Top issuers of masala bonds are HDFC Ltd, NTPC Ltd and Indiabulls Housing Finance.

Masala bonds are favourable for bond issuers as it helps them tap foreign investor demand without taking on foreign currency risk. Another advantage of issuing masala bonds is the lower cost of capital. Issuers can usually raise debt via masala bonds at a lower interest rate compared to raising INR debt in the local market.

Who buys masala bonds?

Masala bonds are typically bought by non-resident Indians and foreign investors. Given the higher inflation in India, interest rates on INR are usually higher than interest rates on other foreign currencies like USD, GBP, EUR and JPY. This makes the yield on masala bonds attractive for foreign investors when compared to bonds denominated in USD/EUR/GBP/JPY.

Do other countries have local-currency offshore bonds?

Yes, absolutely! Other countries also have similar local-currency denominated bonds that are sold to offshore/foreign investors. Some of these bonds are listed below:

Debt Instrument Name Currency
Dim Sum bonds CNY
Kangaroo bonds AUD
Samurai bonds JPY
Komodo bonds IDR
Maple bonds CAD

In order to illustrate why foreign investors may buy local currency bonds like masala bonds, let’s compare two bonds issued by NTPC Ltd., India’s largest electricity company that is owned by the Indian government.

  Masala Bond USD Bond
Currency INR USD
Coupon 7.375% 5.625%
Maturity 10-Aug-2021 14-Jul-2021
Price* 97.2 104.0
Yield* 8.59% 3.94%

*As on 9th January 2019

For like-to-like comparison, we have selected bonds that mature within one month of each other. As can be seen in the table above, there is a differential of 4.65% between NTPC’s masala bond and its USD denominated bond.

This differential can be explained by the fact that the masala bond is denominated in INR.

Where can I track prices of masala bonds?

Masala bonds, like all other bonds, are traded over-the-counter (OTC). Thus, it is hard to come by transparent and live prices for these debt instruments. However, Singapore-based fintech BondEvalue has made it easy and convenient for bond investors to track bond prices through their award-winning mobile app.

BondEvalue has complete coverage of all masala bonds, along with other bonds such USD bonds, SGD bonds, investment grade bonds, high-yield bonds and sovereign bonds. The BondEvalue App can be downloaded for free from the iOS App Store or the Google Play Store. The App allows you to track two-way bond prices, new bond issues, bond-focused news, bond prospectuses and more!


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