After masala, kerala plans dollar and diaspora bonds

KOCHI: Buoyed by the successful listing of its masala bonds on the London Stock Exchange (LSE) recently, the Kerala Government is exploring to tap the overseas market again via ‘dollar bonds’ and ‘diaspora bonds’, Finance Minister T M Thomas Isaac has said.

In an interview to Samakalika Malayalam Varika, a sister publication of Express, Isaac said the fund-raising process from the overseas market is extremely complex and it was an area where the state had no previous experience. KIIFB had recently raised Rs 2,150 crore through masala bonds, the Indian rupee-denominated bonds, from foreign markets.

“After masala bonds, we’re now exploring issuing dollar bonds,” said Isaac. Dollar bonds are US-denominated bonds that trade outside that country. Along with the principal, any coupon payments from the bond are paid in US funds.

The minister said the government is also planning to issue ‘diaspora bonds’, which are mainly aimed at Malayalee diaspora across the world. The Centre for Development Studies, Thiruvananthapuram, reckons the Malayalee diaspora to be in the region of 21 lakh. “The diaspora bonds are aimed at small investors,” said the minister.

Sharing the experience of masala bonds, Isaac said the international fund raising was an extremely complex process.
“It was an extremely complex process. KIIFB was subjected to rating by various agencies. We had to undertake negotiations with international investors to popularise KIIFB bonds, etc,” said Isaac. “Only after these processes the bonds were listed (on LSE),” he said.

The advantage of ‘masala bonds’ is that we can repay the funds in rupees. Hence there will not be any foreign exchange risk. “It’s one of less riskier bonds,” he said.
KIIFB is paying 9.723 per cent for its five-year masala bonds issue. Reports said Kerala had, as recently as May 14, raised Rs 500 crore from the domestic bond market (state development loans, or SDLs) at 8.01 per cent. These bonds have a 10-year tenure.
KIIFB is collecting the funds for the development of infrastructure in the state, from ports to airports and roads to bridges.