Moody's Investors service says India's Housing Development Finance Corp (HDFC, unrated) issuance of a masala bond-a rupee-denominated bond in the overseas market-will open the market for other potential issuers, particularly Non-Bank Finance Companies (NBFCs) and Government Related Issuers (GRIs).
This issuance is the first masala bond for a corporate entity, following issuances by International Finance Corporation (IFC, Aaa stable) and Asian Development Bank (ADB, Aaa stable).
''We expect the market to deepen further with more issuers following HDFC's issuance,'' says Alka Anbarasu, a Moody's Vice President and Senior Analyst.
''In addition, the Indian rupee has depreciated by about 5.3% on a year-on-year basis, allaying some investor concerns about emerging market currency risk at a time when financing conditions have become less favorable for many developing countries,'' adds Anbarasu.
Anbarasu was speaking on Moody's just-released sector comment entitled, ''Finance Companies India: HDFC's Masala Bonds Issuance Opens the Market for Other NBFCs and GRIs.''
The development of the masala bond market will help Indian NBFCs diversify their funding sources, which is their key credit weakness.
Moody's says regulatory restrictions prevent NBFCs from accepting current and saving deposits.
Companies are therefore reliant on expensive and less granular funding from wholesale markets and institutional investors.
Furthermore, the Indian regulator recently issued a discussion paper proposing new limits on banks' lending to large corporates and NBFCs in order to reduce the system's single-name concentrations.
Given that banks are a key source of funding for these entities, these proposed limitations could become a significant constraint on their balance sheet growth, unless these NBFCs and large corporates manage to find alternative funding sources, says Moody's.
In September 2015, the Reserve Bank of India, India's central bank, issued guidelines allowing Indian corporates, NBFCs, real estate investment trusts and infrastructure investment trusts to issue masala bonds.
These masala bonds - although denominated in Indian rupees - are listed on the international market and offered and settled in US dollars, providing easier access for foreign investors.
Shares of the company declined Rs 9.5, or 0.71%, to trade at Rs 1,335.70. The total volume of shares traded was 6,566 at the BSE (9.59 a.m., Tuesday).
