Top Indian Masala Bond Seller Returns to Market After Tax Change

(Bloomberg) -- India's biggest issuer of offshore rupee bonds sold the first masala note by a local company in half a year, after the government relaxed taxation on overseas borrowings and the Indian currency rebounded in recent weeks.

Housing Development Finance Corp. raised five billion rupees ($70 million) via a sale of five-year 8.75 percent notes, it said in an exchange filing. That was higher than the coupon of 6.73 percent the nation's largest mortgage lender offered when it previously sold masala debt a year ago.

The firm is returning to the market after India's Ministry of Finance withdrew tax payable on offshore rupee bonds in September, in an attempt to attract foreign investment to boost Asia's worst-performing major currency. The rupee has recovered since October but has still weakened 10.5 percent this year, weighed down by the increase in crude oil prices and a wider emerging-market rout.

The market for masala notes, which are rupee securities sold abroad, may draw issuers at a time when liquidity is tight domestically. That's a result of a surprise default by Infrastructure Leasing & Financial Services Ltd., an Indian shadow bank.

“There's reasonably good appetite for masala bonds now and we will raise more funds via this channel whenever the opportunity presents itself,” said Keki Mistry, chief executive officer at the company, in a phone interview. “Liquidity in local markets is still tight even though it has eased a little since the IL&FS fiasco.”

HDFC has raised a total of 101 billion rupees through masala bonds since its first issue in July 2016, according to estimates provided by the company.

Dewan Housing Finance Corp. was the last Indian company to issue such notes, in April, according to data compiled by Bloomberg. Masala bonds issued from Sept. 17 to March 31 of 2019 shall be exempt from tax, under the government measure.

To contact the reporter on this story: Aashika Suresh in Mumbai at asuresh20@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Ken McCallum, Finbarr Flynn

©2018 Bloomberg L.P.