#31 Masala Bonds and Panda Bonds: Dipping into Cross-Border Financing

Do you know what Masala Bonds / Panda Bonds are?

Masala Bonds

These are the bonds issued by Indian entities outside the country and are denominated in Indian Currency. These were introduced in India in 2014 by International Finance Corporation (IFC) to fund infrastructure projects. RBI provides the maturity rate vs quantum for such issuance: 3Y for <$50m, 5Y for $50m+

Panda Bonds

This is a Chinese renminbi denominated bond from a non-Chinese issuer. The bond is sold in China. IFC and Asian Development bank issued the first two Panda bonds in October 2005.

Why are the benefits of a Masala Bond over a local issuance?

For investors: Offers higher interest rates to investors overseas given a higher risk premium of a developing country like India, exemption from tax on gains from rupee denomination

For borrowers: As the issuance is in local currency, there is no foreign exchange risk

For country: Enhances foreign investor's confidence in the Indian Economy

Source: ClearTax, Wikipedia

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