now loading...
Wealth Asia Connect Middle East Treasury & Capital Markets Europe ESG Forum TechTalk
Asset Management / Wealth Management
Demand heats up for masala bonds
Sixty-two percent of offshore investors accessing the Indian rupee bond market are investing or plan to invest in masala bonds, a recent Asset Benchmark Research survey shows.
Monica Uttam 2 Jun 2017

Sixty-two percent of offshore investors accessing the Indian rupee bond market are investing or plan to invest in masala bonds, a recent Asset Benchmark Research survey shows.

The difficulty for foreign investors to access the rupee market directly has given rise to investments in rupee-denominated debt instruments issued in international markets. “Operationally it’s very demanding to trade India,” says a Singapore-based portfolio manager at a UK-headquartered fund house, referring to the onshore market, “it has a very complicated system”.

“Masala bonds are easy access to an Indian local rates play, given the restrictions of getting access to onshore India,” says a Hong Kong-based trader at a large US-headquartered fund house. “It’s more of a carry kind of position,” says another Singapore-based portfolio manager at a domestic investment institution, “they are very stable, those bonds. But partly it’s because of the weak liquidity”.

The issuance volume for masala bonds has reached about US$2.17 billion year-to-date according to Dealogic. While this exceeds the 2016 full-year total of US$1.97 billion in deal proceeds, investors still think this is not enough.

“Issuers must be willing to issue. Most are not [willing] now as they have to gross up the withholding tax on behalf of the investors,” says a portfolio manager at a global asset manager in Singapore. Another investor explains that highly-rated issuances in particular are crucial to develop a yield curve. “You need to have at least five triple-A issuers which have tapped this market. Then the investors can actually try to see some switches and churns depending on how the spreads are trading.”

Another hurdle to greater adoption in the international circuit is ticket size. “It’s expensive for issuers to issue these bonds. So, they don’t have big tickets on these bonds. They want to have some participation in this market but they are not willing to pay such a high cost for it. So, in fact the bond issue sizes are quite small,” says a portfolio manager at a local fund house. The portfolio manager explains that larger ticket sizes and enabling participation from domestic onshore investors will help to enhance liquidity.

Despite the growing interest in these bonds from some offshore investors, others are still sceptical about investing: “They [masala bonds] need a higher yield comparable with onshore bonds to be attractive,” says a portfolio manager at a large Singapore-headquartered fund house.

Methodology
The 2017 Asian Local Currency Bond Benchmark Review surveys local currency bond investors including asset managers, hedge funds, private banks, insurance funds and commercial banks, from 11 Asian markets, namely China, CNH, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand.

Data sets include market penetration, market share/wallet share, buying criteria/client satisfaction, research content and the top individuals. To learn more about the Asian Local Currency Bond Benchmark Review please click here.

Conversation
Nitish Agarwal
Nitish Agarwal
CEO and CIO
Orion Capital Asia
- JOINED THE EVENT -
17th Asia Bond Markets Summit
Resilience in an age of uncertainty
View Highlights
Conversation
Hong Sok Hour
Hong Sok Hour
chief executive officer
Cambodia Securities Exchange
- JOINED THE EVENT -
In-person roundtable
Breaking barriers - Scaling the sustainable finance agenda in Asia-Pacific
View Highlights