{"id":3573,"date":"2016-10-05T11:00:42","date_gmt":"2016-10-05T05:30:42","guid":{"rendered":"https:\/\/taxclick.org\/?p=3573"},"modified":"2016-10-05T12:46:07","modified_gmt":"2016-10-05T07:16:07","slug":"tried-rupee-denominated-bonds-yet","status":"publish","type":"post","link":"https:\/\/taxclick.org\/type\/fema\/tried-rupee-denominated-bonds-yet\/","title":{"rendered":"Have you tried Rupee Denominated Bonds yet?"},"content":{"rendered":"

Next time you are consider to raise funds from outside India, do consider the newly permitted Rupee Denominated Bonds (RDBs) as an option. A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements of which are denominated in rupees. RDBs offers lot of advantages over the extant modes of raising funds from overseas. There are least of restrictions placed on RDBs. Be it end use of funds, All in cost etc. or anything else. (Companies which have tried using likes of External Commercial Borrowing[1]<\/strong><\/a> (ECBs), Listed non-convertible debentures will know the hassles, pains and cost of raising funds from overseas.)<\/em><\/p>\n

Looking into ever increasing requirement of Indian Inc. RBI allowed Indian Companies to issue Rupee denominated Bonds. Vide A.P. (DIR Series) Circular No.17 dated September 29, 2015 RBI brought in significant changes in framework of raising funds from outside India by allowing the issue of Rupee denominated bonds (RDBs) overseas.<\/p>\n

The ECB policy is very stringent and levies lot of restrictions like the borrowers who can raise overseas debt, the end use restrictions, the restriction in relation to all in cost etc. In contrast to extant policy the new prescribed policy of Rupee Denominated bonds is very liberal and provides ease of funding from overseas investors to Indian corporate houses. While ECBs help companies take advantage of the lower interest rates in international markets, the cost of hedging the currency risk can be significant. If unhedged, adverse exchange rate movements can come back to hit the borrower negatively. But in the case of RDBs, the cost of borrowing can work out much lower.<\/p>\n

Rupee denominated Bonds as the name indicates are denominated in Rupees. \u2018Denominated in Rupees\u2019 means that the currency risk lies with the investor and not the issuer, unlike External Commercial Borrowings (ECBs). As RDBs bonds are denominated in Rupees they are also called \u201cMasala Bonds<\/em><\/strong>\u201d to give it an Indian flavour. The moment you think \u201cMasala\u201d it takes you to Indian cuisines and flavour or anything which is Indian in essence. It is not the first time that the bonds are named after food items we have also seen Chinese bonds, named as Dim-sum bonds or Japanese bonds named Samurai. It is a step towards making Indian currency global.<\/p>\n

Having the bonds denominated in Rupees may have its own advantages and disadvantages as it can have implications for the rupee, interest rates and the economy.<\/p>\n

\"Masalabond\"<\/strong><\/p>\n

Advantages<\/strong><\/p>\n

Competition from overseas markets may make it compulsory for the government and regulators to speed up the development of domestic bond markets as well. A vibrant bond market can open up new avenues for bond investments by retail savers. We have been harping about fuller rupee convertibility<\/em> for Indian Rupees, Masala bonds is definitely a steps towards it.<\/p>\n

Disadvantage<\/strong><\/p>\n

These bonds may have bad after-effects too if companies decide to splurge on them. Too much reliance on external debt (even in rupees) can weigh heavily on rating of India by global agencies.<\/p>\n

Broad contours of raising funds by way of issuing Rupee denominate funds. <\/strong><\/p>\n

(i) \u00a0\u00a0 Who can raise foreign funds by way of issuance of RDBs<\/strong>: The Eligible borrowers which can issue Rupee denominated bonds overseas are almost everyone being all body corporates, real estate investment trusts and infrastructure investment trusts. The good news is that the entities like LLP which could not rise debt through ECB can now opt for the Rupee Bonds.<\/p>\n

(ii) \u00a0\u00a0Who can invest in RDBs: <\/strong>\u00a0The Recognised investor is any investor from a Financial Action Task Force (FATF) compliant jurisdiction. The onerous conditions of investors who could lend money to Indian eligible borrowers have been done away with in RDBs. As per the Rupee Bond Framework any investor from an FATF compliant jurisdiction can invest in Rupee denominated Bonds issued by Indian Companies.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The Rupee denominated bonds can\u00a0only\u00a0be issued in a country\u00a0and\u00a0can\u00a0only\u00a0be subscribed by a resident of a country[2]<\/a>:<\/p>\n