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Thiruvananthapuram: The Enforcement Directorate has issued a Rs 467-crore FEMA contravention show-cause notice to Kerala Chief Minister Pinarayi Vijayan, former finance minister Thomas Issac, and the CM's chief principal secretary K M Abraham in the KIIFB Masala Bond case.
The notice, issued on November 12, pertains to the alleged contravention of FEMA provisions and the RBI master direction by the Kerala Infrastructure Investment Fund Board (KIIFB) and its authorities, amounting to Rs 466.91 crore.
The KIIFB is the primary agency of the Kerala government for financing large and critical infrastructure projects.
What are ‘Masala bonds’?
Masala Bonds are rupee-denominated bonds issued outside India by Indian companies or government-backed institutions to raise capital from global markets. Although they are issued overseas, the bonds are denominated and settled in Indian rupees. Masala Bonds were first issued in 2014 by the International Finance Corporation (IFC), and in 2015, the Reserve Bank of India (RBI) formally permitted their issuance.
One of the key features of Masala Bonds is that the foreign exchange risk is borne by the investor and not by the issuer. This protects Indian entities from fluctuations in global currency markets and reduces their exposure to exchange-rate volatility, making Masala Bonds a relatively safer borrowing option for Indian issuers.
Both public and private sector entities can issue Masala Bonds. These bonds are open to investment by foreign individuals, institutional investors, and international financial organisations. Typically, the maturity period of Masala Bonds ranges from three to five years.
The funds raised through Masala Bonds are mainly used for infrastructure development, housing projects, working capital requirements, and refinancing of existing debt. By enabling Indian institutions to raise funds without taking on foreign currency risk, Masala Bonds reduce dependence on external commercial borrowings in foreign currencies. At the same time, they promote the internationalisation of the Indian rupee by increasing its use in global financial markets. As a result, Masala Bonds play an important role in India’s long-term financial and economic strategy.
The body corporate floated a 'Masala Bond' at the London and Singapore stock exchanges to raise funds through rupee-denominated bonds to the tune of Rs 2,672.8 crore under ECB (external commercial borrowing) in 2019.
