Kerala’s masala bond issue to remain a non-starter?

 KIIFB rating is now more than 6 months old

THIRUVANANTHAPURAM: Will the Rs5000-crore masala bond (rupee-denominated bonds) issue planned by Kerala Infrastructure Investment Fund Board (KIIFB) remain a non-starter?

Though the KIIFB team announced the masala bond, to be issued in tranches, about a year ago and the ratings on KIIFB from two international agencies – S&P and Fitch, were published more than six months ago, there is yet no clear indication as to when the issue will eventually take off.

Talking to Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services, and a keen observer of financial markets, noted that time was not appropriate for a masala bond issue. “There is liquidity issue in the market and hence bond investors will seek to invest only at very high yields leaving the borrowers confused,” he added.

However, there has not been any slow-down in project announcements from KIIFB’s part with projects worth more than Rs42,000 crore have already been notified. The fact that most projects are not revenue generating, being in the infrastructure, leaves KIIFB essentially looking around for long-term funding.

Notwithstanding the funding support from agencies such as Nabard, availability of bank loans, and fund flows guaranteed by the Kerala Government by way of share of motor vehicle tax (MVT) and petroleum cess, KIIFB will have to raise larger and long-term funds from other sources like bonds in order to finance the huge long-term projects taken up by it.

As per KIIFB’s original plan, the Board that received ratings from two international agencies – Standard & Poor’s (S&P) and Fitch, should have concluded the roadshows and closed the issue by now, but it didn’t go ahead as planned for obvious reasons, and also thanks to the floods that devastated the state physically and fiscally.

Even otherwise too, earlier there were views from different corners by financial experts that KIIFB’s bonds would struggle to attract sufficient interest from international investors such as pension funds or insurance companies as the ratings (BB) assigned by the international agencies were below investment grade.

But while talking to in mid-December, Sanjeev Kaushik (IAS), the deputy managing director of KIIFB, had said a 10-day-long back-to-back roadshows to be run in Singapore, Hong Kong, London and Dubai, would kick-start from the last week of January, 2019 and thereafter the issue would take off, maybe in February itself.

He also had confirmed that KIIFB was getting a lot of investment enquiries from quite a number of funds from London and Hong Kong. “Very recently, we got a serious enquiry from a large Canadian institution, which is just waiting for the roadshows to be concluded,” he had exuded confidence at that time.

KIIFB had said that while the total size of the programme to be listed on London and Singapore stock markets was Rs5,000 crore, KIIFB had already received RBI approval to raise up to Rs2600 crore.

However, things don’t seem to be working as planned. It’s now more than 6 months since the ratings were assigned to KIIFB as well as its bonds. A set of queries sent to the KIIFB top executive about three days ago seeking the prospects of the masala bond’s fate, still remain unresponded.

The March issue of KIIFB newsletter had just confined its reference to masala bond to, “We had extensive discussions with a major international pension fund as a potential investor in KIIFB’s Masala Bonds. We are awaiting the outcome of these discussions.” Thereafter, the newsletter went on to explain what pension funds are all about.

Dr Vijayakumar said Kerala’s fiscal situation is alarming and will likely continue to deteriorate in the foreseeable future. “This will constrain the government’s efforts to raise money from the market.”













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