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Housing Finance Companies Raising Money Through Masala Bonds Signals Revival Of Real Estate

Housing Finance Companies Raising Money Through Masala Bonds Signals Revival Of Real Estate

Housing Finance Companies Raising Money Through Masala Bonds Signals Revival Of Real Estate
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Dewan Housing Finance Limited (DHFL) is among the Big Five in India when it comes to housing finance. Together with HDFC, IndiaBulls, PNB Housing and LIC Housing, it constitutes almost 90 per cent of the country's loan book. The company recently made it to the headlines after it raised Rs 1,000 crore rupee-denominated bonds overseas also called the Offshore Rupee Bond or Masala Bond. This development hints at a likely revival of the Indian property market. 

Meanwhile, PNB Housing Finance is also looking to raise $400 million and plans to fund affordable housing. Out of this, the World Bank has agreed to underwrite $150 million from its own funds. 

Is a revival close at hand?

Masala bonds are offered and settled in US dollars to raise Indian currency from global investors for infrastructure development to be undertaken in India. It is, therefore, for those offshore investors who are looking at an exposure in the Indian assets. The International Finance Corporation (IFC) then converts these bonds into rupees and finances private sector investment generating money and jobs in the economy.  

The real estate market may benefit from this because masala bonds usually bring in the liquidity paving way for investments in the property market. It also encourages an alternative hedging mechanism for overseas investors. In the case of masala bonds, the cost of borrowing is also low for issuers and the money raised is put into infrastructure growth. 

This is also one of those modes wherein the investor is at risk (if the currency depreciates) and not the Indian companies, unlike External Commercial Borrowings (ECBs) where Indian companies have to raise money in foreign currency loans. The investor stands to gain big as well because, after the maturity period, the settlement is made in dollars. 

Others in the league

Early this year, Indiabulls Housing Finance, HDFC, Mahindra Finance, Shriram Transport had received the Reserve Bank of India's (RBI) approval to sell masala bonds. Ashwini Kapila, MD, Barclays says that Indian companies are now seeing merit in masala bond market as a funding source. 

A couple of years back, HDFC had raised Rs 3,000 crore, the first company to do so soon after the RBI gave a green signal in September 2015. Back then, the RBI had opened the rupee-denominated bonds to the Real Estate Investment Trusts or REITs, infrastructure investment trusts or InVITs and not just corporates. Issuers could thereby raise up to $750 million per year. 

If housing finance companies raise money through masala bonds, the real estate market is in for better times.

Last Updated: Thu Apr 19 2018

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@@Tue Feb 15 2022 16:49:29