Kerala Chief Minister Pinarayi Vijayan has rung the bell at the London Stock Exchange marking the listing of masala bonds sold by Kerala Infrastructure Investment Fund Board (KIIFB). Kerala is the first state to issue masala bonds. KIIFB has raised Rs 2,150 crore through masala bonds at a fixed interest rate of 9.723% per annum.
However, this will not come under the Kerala state government’s budget. According to a Hindustan Times report, if successful, other states, especially the ones in high debt could follow suit in issuing masala bonds.
The idea of masala bonds was reportedly put forward by state finance minister Thomas Issac in order to raise funds to rebuild infrastructure in Kerala which recently saw devastating floods. The bond is guaranteed by the Kerala government.
Masala bonds are bonds issued by an Indian entity in a foreign market in the rupee denomination. It is a way for an entity to borrow from foreign investors and is due to be paid at a fixed end date. Masala bonds are usually issued to fund infrastructure and development projects and should have a minimum maturity of five years
The issuance of these bonds was first allowed by Reserve Bank of India in 2015. Currently it allows an entity to raise only $750 million per year, but this can be exceeded with RBI approval.
However, experts say that the masala bond market has been struggling since it came into existence and while other states may follow suit, current US-China trade tensions may be a deterrent for investors to take bets on currency.
Kerala is reportedly looking to spend Rs 50,000 crore on infrastructure projects to rebuild the state over the next five years.