The RBI on Tuesday opened the rupee-denominated bond market to real estate investment trusts (REITs) and infrastructure investment trusts in addition to corporates. Under the automatic route, issuers can raise up to $750 million per annum, beyond which RBI’s approval is required.
These issuers have been allowed to issue rupee-denominated bonds (described as masala bonds by investment bankers) to any investor from any jurisdiction as long as they are compliant with the International Financial Action Task Force guidelines. Banks headquartered in India can help sell these bonds but not invest in them.
The negative list for using proceeds of these bonds are: real estate other than integrated township or affordable housing projects, capital markets, or purchase of land. The rupee bond route cannot be used to bypass FDI restrictions.
Commenting on the move Finance minister Arun Jaitley said it the move would provide additional source of raising resources, which would be fully hedged as they are denominated in rupees.
Economic affairs secretary Shaktikanta Das said, there is an appetite of rupee-denominated bonds in the overseas markets. “Since the entire bond would be raised in rupees and repayment would also in rupees, there is inherent hedging because the exchange rate fluctuation risk doesn’t exist.”