Masala is back and IREDA kicks up the appetite with a Climate Bonds Certified green bond
What’s it all about?
Hot on the heels of the 22nd September Reserve Bank of India announcement separating out masala bonds from the Foreign Portfolio Investment (FPI) limit, the Indian Renewable Energy Agency (IREDA) has issued a Climate Bonds Certified Masala Green Bond worth USD300 million (INR19.5 billion) via a five-year paper.
The announcement was made today at the bond launch on the London Stock Exchange, attended by Mr. Kuljit Singh Popli Chairman and Managing Director of IREDA, Shri Anand Kumar Secretary, Ministry of New and Renewable Energy, and Jo Johnson MP Minister of State for Universities, Science, Research and Innovation.
Proceeds of the Certified Climate Bond will go towards financing renewable energy projects across India.
The bond will be dual listed on both LSE and SGX.
More Masala
First Green Masala Bond by a Financial Institution: IREDA’s masala bond is the first green Climate Bonds Certified and Investment Grade rated bond by a financial institution.
Tightest yield in 2017 for Masala Bonds: The deal achieved the tightest ever yield in a public masala issuance. The issuance is marked at a coupon of 7.125 percent and a reoffer yield of 7.23 percent annualised. It attracted strong participation from funds and asset managers to give a tightening of 7bps from the initial price guidance.
Highest Masala Order Book Size in 2017: The bond was oversubscribed at 1.74x across 49 accounts - the highest in the masala space in 2017. This helped converge the masala and onshore pricing at a total cost flat to IREDA’s onshore levels.
First green Masala bond on London Stock Exchange’s new International Securities Market (ISM).
The bond saw a distribution of 66% to Asia and 34% to Europe. Funds and insurance companies formed the bulk of investors (62%) and the rest was divided between public and private banks (32% and 8% respectively).
Who’s saying what?
Mr. Kuljit Singh Popli, Chairman and Managing Director of Indian Renewable Energy Development Agency (IREDA):
“IREDA is fully committed to helping achieve Indian Government’s vision of 175 GW renewable energy capacity by 2022. The Green Masala Bond is a significant milestone for IREDA in this regard, as we embark on the next phase of renewable and sustainable energy led expansion. This is another step towards our Honourable Prime Minister’s commitment to the Paris Agreement on Climate Change.”
Shri Anand Kumar, Secretary, Ministry of New and Renewable Energy:
“The IREDA Green Masala bond illustrates Government of India’s commitment towards fostering the renewable and sustainable energy sector. Renewable energy will increasingly become the dominant force in energy generation, as we strive for ‘’Electricity for All” and achieve our mandate of 175GW renewable energy capacity by 2022.”
A closer look into the Masala space
Issuances through Masala Bonds (bonds issued offshore by domestic companies but denominated in the Indian currency) have been lapped up by the market as investor’s acceptance for INR risks grows.
In July 2017, the Securities and Exchange Board of India, the securities market regulator, had imposed a moratorium on masala issuances until FPI utilisation of debt limits fell below 92%.
However, at a time when corporates in India are trying to diversify their funding sources, the Securities and Exchange Board of India (SEBI) moratorium was felt to be deflating for the bond market (at least in the medium term). Bank lending in India has dropped drastically on account of high non-performing assets on banks’ balance sheets.
With the shifting out of masala bonds from the FPI space, large, high rated issuers are most likely to get active again. RBI’s restrictions on spreads, tenor and size of issuance will keep small low investment grade issuers out of the market.
Despite their willingness to keep an active oversight on this nascent market, regulators have been working towards increasing attractiveness of masala bonds to Indian issuers. IREDA’s issuance has tapped the latent appetite for masala bonds within a week of RBI providing it more room.
The Last Word
India’s green bond market is expanding fast, currently ranking among the top 12 green bond markets worldwide in our recent State of the Market 2017 Report.
Indian green bond issuers have been amongst the pioneers of Climate Bond Certification and IREDA is maintaining this trend towards best practice in disclosure and transparency on use of proceeds.
Listing on the prestigious London Stock Exchange with its support for green bond market development gives a fillip to London and the UK’s wider efforts to position the capital as the green finance and green hub race amongst far sighted cities speeds up.
This issuance will also act as a demonstration kick starter, expect more masala issuances in the next few months.
Keep your eyes open!
‘Till next time,
Climate Bonds
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