@Leisure - Vol-24 | srei
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@Leisure - Vol-24

Newsletter
 

What are Masala Bonds?

A great deal of India’s appeal is because of its culinary richness. Indian food evokes memories of rich flavour, varied texture and vivid colours. Can that be transferred to foreign investments as well? Masala Bonds are the latest attempt by the government to lure foreign investors to Indian shores. Let’s have a closer look at them:

What are Masala Bonds?

Very simply, Masala Bonds are instruments that allow Indian entities - private or public - to raise funds in rupees instead of foreign currency. When an Indian company or entity raises money by issuing bonds in rupees, it is shielded against volatility in foreign exchange. Companies also benefit from these types of instruments because they can take advantage of divergent interest rate regimes present in different markets, which can work out to be cheaper than borrowing at home.

What makes these bonds attractive?

  • Settled and offered in dollars: Masala bonds are denominated in Rupees but offered and settled in US dollars. The money raised in dollars is then converted into Rupees to bolster infrastructure development in India.
  • Currency risk: The currency risk is borne by the investors in these bonds as the face value of the bond is in Rupees. A stable currency can lead to making these bonds more attractive for investors.
  • Lower cost of borrowing: The cost of borrowing in India is on the higher side; these bonds open a window of opportunity for Indian corporates who can use lower borrowing costs abroad to fund their future growth.

Why are these bonds a new plus?

Masala bonds will have a wide impact beyond just lowering the cost of borrowing and protecting India Inc. from foreign currency volatility. These bonds hold the potential of putting the Indian rupee on the international stage just as the Chinese Yuan denominated dim-sum bonds did for the Renminbi Yuan. Issuance of these bonds in international financial centres will increase visibility of the Rupee and also lead to increased demand for such products in the future, if these prove to be successful.

Who can issue these bonds?

Private and public sector entities can issue these bonds, but so far, no Indian private company has done so. An Indian company can raise a maximum of US$ 750 million per year through the Masala Bond route. The first ever Masala Bond was issued by the International Finance Corporation (IFC), an arm of the World Bank, in October 2013. HDFC is mulling over issuing a Masala Bond to the tune of the maximum permissible US$ 750 million as well.1 NTPC, Power Finance Corporation (PFC) and Indian Railway Finance Corporation (IRFC) are set to issue Masala bonds up to the tune of US$ 1.5-2 billion collectively.2

Conclusion: While overall the development of Masala Bonds is wholly positive, large and established issuers will find more success than smaller companies as investors are likely to be acutely aware of currency and economic growth as external factors and will give greater scrutiny to issues before investing in them. Masala bonds can lead to eventual full convertibility of the Rupee, which has been the goal of the government for a while now. Only time will tell how successful Masala Bonds have been in infusing growth into the economy.

 

'Swach' – Srei’s water management initiative.

Srei has been in the infrastructure finance business for a quarter of a century. In 1989 when Srei took its first steps, there was not much quality investment in the infrastructure sector and India was a closed economy. Our company’s aim back then was to address two problem areas of the Indian economy – financing and infrastructure. We are proud to say that we have come a long way. Today, by using the latest technology and by constantly innovating, we have managed to extend the Srei advantage to:

India is the second largest user of water after China. The rapid development of urban infrastructure not only entails an increase in the use of water but also increases the amounts of waste water. Srei realizes the importance of preserving this precious resource of our planet that sustains life on it. Swach Environment Private Limited or Swach, is an affiliate of Srei . The company operates in areas including waste water and the environmental sector.

What is Swach?

Swach has the goal of becoming the largest integrated environment management organization with a pan-India presence by 2016. The mission of the company is to bring about sustainability through innovation. We want to provide quality, reliable and economical solutions that will help in environment management. Swach has a focus on socio environmental infrastructure and we are committed to aligning our business with governmental regulations, policies and plans.

Srei helps develop sustainable environmental solutions

The environment is a crucial area not only in the present times but also in the coming future. Waste and wastewater management particularly have an important role to play in urban development. Srei , through Swach, provides a gamut of services that address a wide range of concerns in this area. We provide complete and holistic solutions with respect to water management for both industrial water (waste water) management as well as municipal water management. Swach also works in the area of waste management and we provide services like industrial waste management and municipal solid waste management. Swach also has a foothold in the E-waste management arena.

Our achievements

Swach, even though a relatively new player in the Indian waste water arena, has won the Nangloi PPP in Delhi in partnership with Veolia. Under the provisions of the 15-year Nangloi contract, US$ 85 million will be invested in water treatment and distribution system with 70 per cent of the funds coming from the Delhi Jal Board with the rest being funded by private parties. We have adopted an integrated approach to waste management, which ranges from hazardous waste management to environment infrastructure development, and supports the philosophy of reuse and recycle.

Conclusion: Srei’s commitment to providing excellent support to urban infrastructure development in a sustainable way remains in place. With the future expansion of India’s urban centres, there is a greater need for using the resources available in a way that is less harmful to Earth. We aim to bring the benefits of sustainable development to more people with our affiliate Swach.

 
 

Bonds can help you in turbulent economic times

Bonds and equities are the two mainstays of an investing portfolio. They go hand-in-hand in managing the risk-return equation. While equities help you generate wealth, bonds help in preserving your wealth. Turbulent economic times pose numerous investment challenges and test the temperament and nerve of an investor. Such times require that a part of your assets remain relatively solid and steady even while the rest is impacted by the high volatility. Bonds possess this particular trait and can help you in wading through such economic turbulence.

Bonds help in economic turbulence

Just as a balanced cricket team needs a good blend of defensive and aggressive batsmen, a well-designed portfolio should balance the risk-return characteristic to an optimal equilibrium. It therefore becomes important that the constituents of your investment portfolio need to be diverse in their characteristics. It is equally important that they complement each other in improving the overall investment result. Bonds, due to their relative certainty and lower volatility, play the complementary role to equities well. In effect, bonds help you diversify your investment holdings thus minimizing the impact of economic woes on your portfolio.

Bonds have a reasonably negative relationship with equities in the sense that they both perform well during different phases. By including bonds in your portfolio, you can not only minimize the fluctuations caused by the equity component of your portfolio, you also stand to gain from the possible outperformance of bonds during such turbulent times. Bonds provide stability to the portfolio.

Bonds also produce a steady stream of cash inflows through coupon payments. Coupon is nothing but the interest paid out by bonds at periodical intervals. Coupons therefore provide liquidity to the portfolio. This ensures that you need not liquidate your holdings to meet your cash flow needs. This is all the more useful during troubled economic times because other assets tend to be severely hammered down in this period and liquidating them could cause profound financial loss.

But just in case you do not need any liquidity from your investment portfolio, you may allow your bond returns to compound, utilizing the cumulative option, to enhance your investment returns. Compounding ensures that your bond returns snowball into a neat sum over time. This also adds flexibility in designing your portfolio. You may opt for liquidity or long term compounding based on your needs.

Conclusion: Bonds are a part of the debt asset class, which has an important role to play in any investment portfolio. Bonds become even more important in times of economic turbulence to impart stability to your portfolio. If other assets are going through turbulent times, bonds can offer you protection and a chance to make assured returns on your investments. 

 
 

Buddy Jokes

JOKES

1. This year, the closest I’ve been to dieting is erasing all food searches from my browser history.

2. A scientist walks in a pharmacy: “Give me some prepared tablets of acetylsalicylic acid.”
Pharmacist: “Sir, Do you mean aspirin?”
Scientist: “That’s it! I can never remember the name.”

3. A board outside repair shop reads:
“WE CAN FIX ANYTHING (Please knock on the door—the bell doesn’t work.)”

4. What did the Zero say to the Eight?
Answer: "Nice belt!"

5. An Employee of the Month is a good example of when a person can be a winner and a loser at the same time.

 

Buddy Quiz

True or False

1. Masala Bonds are the latest attempt by the government to lure foreign investors to Indian shores
a. True
b. False

2. The first ever Masala Bond was issued by the International Finance Corporation (IFC), an arm of the World Bank, in October 2010.
a. True
b. False

3. Swach also has a foothold in the E-waste management arena.
a. True
b. False

4. India is the second largest user of water after China.
a. True
b. False

5. While bonds help you generate wealth, equity help in preserving your wealth.
a. True
b. False

Answer: 1. (a); 2. (b); 3. (a); 4. (a); 5. (b).