India Plans $750 Million of Masala Bond Sale to Build Roads

  • Notes will be listed in London and Singapore, Minister says
  • Sale a part of efforts to seek cheaper funds overseas

India plans to sell as much as 50 billion rupees ($750 million) of offshore rupee bonds in London and Singapore and use the proceeds to accelerate construction of roads and ports in Asia’s third-largest economy.

State-owned National Highways Authority of India will raise the funds, Transport Minister Nitin Gadkari said, adding that the masala bonds are expected to be priced at 7.25 percent. The sale, which will be done in phases, will be the largest such issuance by a state-run firm since NTPC Ltd., the nation’s biggest power producer, raised 20 billion rupees in August.

Gadkari is betting that cheaper overseas funds will help the government meet its target of building 42 kilometers of roads a day in the nation that stands below Namibia and Azerbaijan in the World Economic Forum’s infrastructure ranking. Prime Minister Narendra Modi’s administration, which faces crucial elections across several states next year, aims to spend as much as $14.5 billion in the year to March on expanding India’s network of roads and ports, amid slowing private investment.

“In India, interest costs are very high,” Gadkari said in an interview in Bloomberg’s Mumbai office. Interest rates charged for infrastructure projects elsewhere in the world are as low as 2 to 3 percent, he said.

NHAI Revamp

The road-building authority, or NHAI, sent requests for proposals to potential arrangers in June for a planned masala bond issuance, people familiar with the matter said back then. Indian banks, burdened by about $120 billion in stressed assets in infrastructure, lend at rates as high as 11 percent, forcing borrowers to look overseas for cheaper funds, according to the minister.

Housing Development Finance Corp. has raised 50 billion rupees via masala issuance till date, the most from any issuer so far, according to data compiled by Bloomberg. India’s biggest mortgage lender opened the market for local companies in July with a 30 billion rupee sale of masala notes.

“NHAI should get the finest pricing, if it taps the masala bond market, due to the company’s quasi-sovereign status,” said Ajay Manglunia, Mumbai-based head of fixed income at Edelweiss Financial Services Ltd. “There is no doubt the masala market is promising for infrastructure borrowers.”

The government may revamp NHAI as part of its plans to accelerate execution of infrastructure projects, Gadkari said. Bureaucracy in the 28-year-old company, which is responsible for implementing the administration’s highway-development program, has often delayed decisions on several key road projects, he said. The minister said he was looking to restructure the organization to expedite decision making as well as remove unnecessary hierarchy.

— With assistance by Anurag Joshi

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