The Connectere podcast is an initiative to bring forth innovative ideas and opinions of the youth forward via the digital medium. In this episode of the podcast, we have Aashi who walks us through what green bonds and masala bonds are (hint: masala bonds are not spicy !)
Here is the spotify link for the podcast – https://open.spotify.com/show/4lBNc63mANGyz0iJ80WsOt
Here is the episode transcript:-
Welcome to one and all. I am Aashi and you are tuned into The Connectere’s podcast. Today we are going to discuss about Green Bonds and masala bonds.
Recent Australian bushfires is a warning for what is coming around the world. Climate change is concerning every one of us but many industrializing economies are facing the danger from industrial pollution which adds to a total of 8% to the world pollution. Developed and developing countries face rising financial challenges from climate change.
Green bonds are bonds specially focused to encourage sustainability and climate safe projects. These are like any other bond which issues the instrument to the investors for the aim to raise funds. Funds under green bonds can be invested in projects related to Renewable and Sustainable Energy such as wind and solar sustainable waste management, energy efficiency, biodiversity conservation etc. These instruments are becoming more popular because many investors are shifting investments from fossil fuel based companies to green projects or the well known the climate projects. Green bonds, allow firms to raise finance for low carbon and climate-friendly projects, offer a promising solution to climate change while delivering better outcomes for companies.
To keep a check on its qualification, for green bond status, Climate Bond Standard Board, certifies that the bond will fund projects that include benefits to the environment. Green bonds come with tax incentives such as tax exemption and tax credits, making it further attractive for investment.
First green bond was issued by the World Bank and European Investment Bank in the year 2008. That time it was also known as the Climate Bonds. The concept of Climate Finance was thus registered in United Nations. CLP Wind Farms is the first issuer from India, followed by Yes Bank being first such issuer in 2015. Till 2018, more than total of USD 500BN issuance was recorded.
Currently green bond market is dominated by three countries – China, United States and France. But still India is the fastest growing green bond markets in Asia. Though green bonds are only a small share of the larger bond market, they have grown rapidly over the over the decade. Kristalina Geogieva, World Bank, CEO says and I quote “Our generation may not be able to solve all the problems related to climate change, but we can do our part to leave a better planet for our next
So you might think that this is the conclusion but, there is a bonus topic I would like to state in continuation to this which is Yet another bond; the masala bonds.
Yes it is the spices of India referred in hindi as masala. As essential spices market and origin is dominated by India, our bonds are too. Masala bonds are rupee-denominated borrowings issued by the Indian entities in the overseas markets. So here the bonds are pegged in Indian Rupee. Now the question is who bears the currency fluctuation losses? Answer is the foreign investors and not the issuer (i.e.
company or firm) and thus helps to reduce costs relative to issuance in the domestic market. Investors are compensated by the higher interest rates due to higher inflation in India as compared to others. Through masala bonds, the foreign capital comes to India which helps to support the Indian rupee. Currently the bonds are listed on the London Stock Exchange.
Masala bonds do have some requisites or norms of the RBI to be abided by: they include minimum maturity period of 5 years and a limit of USD 750 million of borrowed capital. Such shorter period is indicative to the reduction in risks to the investors which happens due to economy changes. Adding to that, proceeds from such bonds cannot be used for real estate activities or capital market investment. Few companies who raised funds via masala bonds are Indiabulls Housing Finance, HDFC, NTPC (largest electricity company owned by the Indian government) etc.
Masala bonds came into existence only few years from now; when there was uphold increase in the fiscal deficit. In 2013, when the growth rate stood at 4.8 and the stock market fell decently due to heavy demand of dollar. Then the government and IFC (known as International Financial Corporation) decided to launch these bonds in international markets and it was later known as the masala bonds.
Like rupee denominated bonds, other countries also have local currency bonds like Dim Sum bonds denominated in Chinese Renminbi and Komodo Bonds, ones in Indonesian Rupiah. In India where it has immense scope to diversify the green bond market beyond renewable energy, masala bonds integrate financial markets in India further with the rest of the worldSo here ends the podcasts where we discussed green bonds and masala bonds. Thank you to be with me till the very end. I hope this is fruitful to you! Don’t forget to like and share. Comment your views on the topic and the content to help us improve. Continue listening to us, at The Connectere!