Masala bonds: fad of the past?

Author: Karry Lai | Published: 26 Mar 2019

Currency risk, political uncertainty and a tighter regulatory regime have all made masala bonds unattractive following their heyday in 2016, but things are looking up for the second half of 2019, according to bankers and lawyers.

A source at an Indian bank said that as masala bonds are rupee-denominated but issued outside of India, they do well when the local currency is stable or appreciating.

With the macro economy worsening and currency depreciating in recent months, the demand for masala bonds has been low. "Issuers and borrowers can’t rely on masala bonds as a reliable source of funding," said the source. The volatility in the currency markets has meant offshore investors are cautious about taking on exchange risk on the Indian rupee.

Tightening global liquidity in the past few months, as a result of declining market conditions, has also been an issue. "Owing to macroeconomic factors such as the...