Adani Transmission is looking to raise funds through offshore rupee-denominated bonds, or masala bonds, for which it is set to commence road shows starting Wednesday, according to a banker aware of the development.
“The company is looking for a masala bond issuance and the issue will be a Reg S/144 A,” the banker indicated. Standard & Poor’s ratings services on Tuesday assigned its preliminary ‘BBB-’ long-term corporate credit rating to Adani Transmission.
“We also assigned our preliminary ‘BBB-‘ long-term issue rating to the company’s proposed issuance of Indian rupee-denominated senior secured notes,” it said in a release adding that the issue rating is subject to their review of the final issuance documentation.
“The rating on ATL reflects our expectations of stable cash flows driven by a favorable regulatory environment, the company’s power transmission business, and its good operating record,” said Standard & Poor’s credit analyst Mehul Sukkawala.
Institutions like the International Finance Corporation (IFC) which is a member of the World Bank Group has issued masala bonds. Interestingly, no Indian corporate has so far come out with a Masala bond. Pricing had emerged as an issue as investors had demanded higher yield on these instruments taking the yield higher than the domestic rates.
It is noteworthy that investors tend to ask for a premium in case of Masala bonds since the currency risk lies with them and hedging their exposure fully would have a considerable impact on their gains. The 5% witholding tax for foreign portfolio investors (FPIs) is also a burden on the issuer as investors tend to look at the net yield they would be getting. Although there were expectations among market participants regarding some kind of a tax holiday or the removal of this witholding tax, nothing was announced. Even companies like DHFL are looking to issue Masala bonds according to bankers who did not want to be quoted.