Kerala Floats $300 Million Of Masala Bonds

Indian state government heads to the bond market for financing.


Kerala, the southern state of India, floated masala bonds worth USD 309 million through the ‘Kerala Infrastructure Investment Fund Board’ (KIIFB), to finance large and critical infrastructure projects in the state. It is raised through the Medium Term Note (MTN) program listed in London and Singapore stock exchanges. Both S&P and Fitch have rated the MTN Program with a Stable (‘BB’) outlook. The state has created history by becoming the first entity in the country to foray into the international debt market.

Kerala is in the thick of development and huge infrastructure projects have to be completed within a short period of time. Financing the projects through loans is a costly proposition, masala bonds seem to be an attractive and cost-effective option.

“In the case of masala bonds, cost of borrowing is considerably lower as compared to other borrowing options available in the domestic market,” says Kritika Chhabra, Corporate Law Consultant, MUDS Management Private Limited. “Another advantage is that it is better than external commercial borrowing (ECBs) because currency risk or exchange risk completely lies with the investors and not the issuers.”

“It also strengthens the rupee and lowers the currency risk,” Kritika says.

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