With offshore investors showing good appetite for rupee-denominated masala bonds, Export-Import Bank of India (Exim Bank) is eyeing a tie-up with SBI Capital Markets to help mid-cap companies raise resources via this route.

According to the Reserve Bank of India, the (masala bond) window, which witnessed initial activity in the form of private placement of bonds (by HDFC and NTPC) overseas, has gathered steam with diverse offshore investors now showing interest in rupee-denominated papers of Indian companies.

Total agreements for such (debt) papers till the first week of August 2016 by Indian companies were to the tune of ₹6,000 crore, the RBI said in its annual report.

Yaduvendra Mathur, Chairman and Managing Director of Exim Bank, said: “We have been engaging with the London Stock Exchange (on the possibility of Indian companies raising resources via masala bonds)… We, jointly with SBI Capital Markets, are looking at identifying 20-30 (mid-cap) Indian companies, which are rated not ‘AAA’ or ‘AA’ but ‘A-’.”

According to the rating definition of CARE Ratings, long- /medium-term debt instruments rated ‘AAA’ are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Instruments with ‘A’ rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. SBI Capital Markets is a wholly-owned investment banking subsidiary of State Bank of India (SBI), the country’s largest bank.

Mathur said: “So, we plan to handhold some of these companies and take them to meet investors in London…Exim Bank and State Bank of India may come up with some credit enhancement for these masala bonds.”

The Exim Bank chief elaborated that the road shows will enable chief financial officers of companies to check out whether masala bond issuances make sense in the context of concerns they may have regarding transaction costs, lawyers’ fee, the documentation needed to float the bonds, pricing and withholding tax to be paid and the prospective gains.

David Rasquinha, Deputy Managing Director, Exim Bank, said: “SBI Cap is supposed to get back to us with a list of companies which may be interested in the masala bond issuance.”

Once the list is crystallised, both Exim Bank and SBI Cap will do some basic due diligence on the companies before taking them to the London market.

Since Exim Bank and SBI may provide credit enhancement to the masala bonds, Mathur underscored the importance of due diligence.

“If the (masala bond) issuer defaults, we will be left holding the baby,” he said.

In its annual report, the RBI observed that with restrictions primarily in the form of minimum maturity and restrictions on cost and end-use eased, the window for rupee-denominated bonds overseas is expected to become a meeting ground for funds seeking Indian corporates and returns seeking foreign investors.

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