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Friday, Sep 20, 2019

Kerala CM to ring bell at LSE for listing of ₹2.1k cr masala bonds

The tiny Masala debt market has been struggling since its emergence four years ago.

india Updated: May 17, 2019 00:43 IST
HT Correspondent and Bloomberg
HT Correspondent and Bloomberg
Hindustan Times, Thiruvanathapuram
Spices and herbs in metal bowls and wooden spoons. Food and cuisine ingredients.
Spices and herbs in metal bowls and wooden spoons. Food and cuisine ingredients.(Getty Images/iStockphoto)

Kerala chief minister Pinarayi Vijayan will ring the bell at the London Stock Exchange to mark the listing on Friday of the ~ 2,150 crore of masala bonds sold by Kerala Infrastructure Investment Fund Board (KIFFB). Masala bonds are debt paper sold overseas by an Indian entity and denominated in rupees.

Kerala, led by a Left Front government, is the first state to issue masala bonds, which it says would mark a new page in the state’s development. If it is successful, many debt-ridden states are likely to follow suit.

A brainchild of state finance minister Thomas Issac, who is also an economist, the government thinks it can attract funds and rebuild infrastructure in Kerala, which was devastated by last year’s floods.

The bond sale may, however, not spark a rush of debt issues as investors are unlikely to take on currency bets at a time when US-China trade tensions are flaring up.

The tiny Masala debt market has been struggling since its emergence four years ago.

“While other state entities may follow Kerala, they will have to wait for the markets to stabilize from the current US-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.”

Kerala’s has taken a funding route less travelled, as it plans to spend ~50,000 crore on infrastructure projects over the next five years, according to an investor presentation. The issuance was jointly led by Axis Bank and Standard Chartered Bank, and is guaranteed by the Kerala government.

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.

Some allies of the Communist Party of India (Marxist), or CPI (M), aren’t amused .

The Revolutionary Socialist Party has written to CPI(M) general secretary Sitaram Yechury pointing out that Communists had always opposed neo-liberal policies, and were now embracing vestiges of capitalism in a party-ruled state.

“It is a historical contradiction that the CM is embracing a capitalist norm without any qualm,” wrote RSP leader and Kollam MP N K Premachandran.

First Published: May 17, 2019 00:43 IST