National Stock Exchange of India (NSE) and London Stock Exchange (LSE) have signed Memorandum of Understanding (MoU) to collaborate on creating dual listing route for masala bonds and foreign currency bonds of Indian issuers. Through approval of single listing document, issuer can obtain dual listing on LSE’s International Securities Market and NSE’s GIFT City. It will serve as potential precursor of further joint listings in future that could see foreign currency bonds in India also being able to list in London.
Masala bonds are rupee-denominated bonds through which Indian entities can raise money from foreign markets in rupee and not in foreign currency. Basically, it is debt instruments used by corporates to raise money from foreign investors in local currency.
The issuance of rupee denominated bonds transfers risk associated with currency fluctuations to investors and not to the issuers. This is especially during depreciation of domestic currency and when borrowing is in foreign currency as company has to pay more while repaying its debt, or while servicing interest on such borrowings if the rupee weakened.
From the issuer’s perspective, masala bonds provides cheaper borrowings compared to raising funds in India besides helps in diversifying its sources of fund-raising. Besides, it also helps in internationalization of the rupee and in expansion of Indian bond markets. Its issuance in long term can help to check slide of rupee and also reduce current account deficit over time.
Significance of dual listing of masala bonds
It will extend access to wider base of global investors as well as domestic and regional investors registered on NSE’s International Exchange and NSE IFSC Limited in Gujarat International Finance Tech City. It will also enhance visibility, increase liquidity in secondary marketsand enhance efficiency of price discovery for masala bond issuers. It will also reduce cost of raising capital for all issuers and encourage participation of wider variety of issuers in masala bond market.