IFC issues 15-yr masala bond: What it means for foreign debt mkt

Rupee bonds do not find too much favour with overseas investors as currency volatility risk falls on the buyer -- so a 7 percent fall in the rupee would wipe out a 7 percent yield on the bond that an investor hopes to achieve.

However, the market for offshore bonds denominated in a country's currency has taken off for some countries, such as China where "dimsum" bonds have found takers in the West, Hua said.

On the contrary, Indian offshore bonds issued so far do not witness much trading in the secondary market, he conceded, saying that most buyers may hold them to maturity.

"But you have to start somewhere," he said. "The successful issuance of the 15-year masala bond also shows that investors are now willing to bet on longer-tenure rupee bonds, and are willing to eschew the perceived safety of a shorter-tenure bond," he said.

Being a global AAA rated institution, IFC was able to issue the bonds at 7.1 percent, lower than the yield the Indian government pays for its own government securities.

Using the proceeds of the funds raised so far through the masala bond route, IFC has so far invested in 11 projects, including a "green masala bond", which it raised for Yes Bank, Hua said.