ONSHORE BONDS :
- Onshore bonds are issued by financial entities to raise money from the investors located within the borrower 's home country.
- It is typically in local currency .
OFFSHORE BONDS:
- Offshore bonds are issued by financial entities to raise money from the investors located outside the borrower 's home country.
- Offshore debt can be Rupee denominated or in terms of foreign currency.
Foreign Currency Convertible Bonds (FCCB):
- FCCB are offshore bonds denominated in foreign currency .
- The issuer can convert the bond into stock at a pre-determined conversion rate .
- The debt of company is reduced on conversion of debt into stock.
Foreign Currency Exchangeable Bond (FCEB) :
- FCCB are offshore bonds denominated in foreign currency .
- The issuer can convert the bond into stock at a pre-determined conversion rate .
- The key feature of these bonds is that they are issued by an Issuing Company, but these equity are exchangeable into equity shares of another company which is called the Offered Company.
- The Issuing Company and the Offered Company of an FCEB need to be a part of the same promoter group.
Rupee denominated debt:
- External debt of India that is denominated in India’s domestic currency, the Rupee.
- The contractual liability is settled in foreign currency.
- These bonds are beneficial for the borrower in the sense that exchange rate variation risk is borne by the creditor and not by the borrower.
- So, the borrower always pays back the foreign currency equivalent of the rupee denomination valued at the spot exchange rate prevailing at that point in time.
At the time of borrowing :
Creditor (Dollar)-------------------converted to INR------------------- Borrower
At the Time of giving back :
Borrower (INR)-------------------converted to Dollar------------------- Creditor
In India rupee denominated debt comprises :
- Rupee denominated NRE account
- Non-Resident Ordinary Rupee (NRO) account,
- Foreign Institutional Investors (FII) investment in Government Treasury-Bills
- Dated and FII investment in corporate debt securities .
- Masala bond
Masala Bond:
Masala bonds, are first Rupee denominated off-shore bonds, used by Indian entities to borrowings from overseas markets .
Features :
- These bonds are issued to foreign investors in rupee denominations and settled in US dollars
- Those foreign investors who want to take exposure of the Indian market invest in these bonds.
- Being Rupee denominated, the currency risk lies with the investor and not the issuer, unlike money raised in foreign currency loans.
- It benefits the Indian borrower from currency fluctuation as there is no risk of loss due to rupee depreciation as the issuance of these bonds is in Indian currency rather than foreign currency.
