The portrait of Mahatma Gandhi is displayed on an Indian 2,000 rupee banknote in an arranged photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

Investors May Shy Away From Masala Bonds Even After Kerala Sale

(Bloomberg) -- India has just seen its first local government sell an offshore rupee-denominated bond, but it may not see a rush of issuers as investors are unlikely to take on currency bets at a time when U.S.-China trade tensions are flaring up.

Kerala Infrastructure Investment Fund Board will list 21.5 billion rupees ($305 million) of Masala bonds on the London Stock Exchange on Friday after pricing the five-year notes in March. The funding arm of the southern India state chose to tap the tiny Masala debt market, which has been struggling since its emergence four years back.

“While other state entities may follow Kerala, they will have to wait for the markets to stabilize from the current U.S.-China trade tensions,” said Bharat Shettigar, head of Asia ex-China corporate credit research at Standard Chartered Bank. “I do not see a large amount of issuance from similar entities as overall demand for Masala bonds is a bit patchy.”

With its beaches and tourist tagline of ‘God’s Own Country,’ Kerala has taken a funding route less traveled, as it plans to spend 500 billion rupees on infrastructure projects over the next five years, according to an investor presentation posted on its website. The issuance was jointly led by Axis Bank and Standard Chartered Bank, and is guaranteed by the Kerala state.

Indian states have huge financing requirements for building infrastructure, and selling offshore debt helps diversify funding by tapping large pools of available funds, Standard Chartered’s Shettigar said.

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