13 November 2015

More Masala bonds please


It is all a matter of perception, of course, but the fanfare given to Indian Prime Minister Narendra Modi on his visit to London has been somewhat muted relative to that given President Xi Jinping of China just a month ago. More is the pity, as the UK’s economic partnership with India is just as mutually beneficial, if not more so, as our relationship with China.

Take the announcement by Mr Modi that he wants London to be a major centre for the issuance of so-called Masala bonds. These are new Rupee bonds issued offshore to pay for infrastructure investment in India and are a variant of the market for Project Bonds which I suggested last week on CapX.

Mr Modi said: “We are going to use the London market for fundraising even more and I am happy to announce that we are set to launch a railway rupee bond in London. It is appropriate as the journey of Indian Railways started in the UK.”

This, surely, is excellent news, unlike the somewhat contrived announcements which accompanied President Xi’s visit, such as the UK agreeing to pay through the nose for the Chinese to build a nuclear power station at Hinkley Point.

If London is to maintain and develop its position as an international financial centre, with the jobs and export revenues that go with it, this is just the sort of market it needs to host. Indeed, Barclays estimates that so large is the need for investment in India and so big the demand from investors for income producing assets, the Masala bond market could be worth $50bn within three years.

George Osborne was right when he responded: “Just as Britain’s Victorian engineers helped to build the great railways of India, so now Indian firms are helping to build Britain’s future as the capital of global finance.”

The silence from almost everyone else, however, was deafening. Embarrassingly so. Apart from a few honourable exceptions there was no coverage in the financial press and even the London Stock Exchange could not bring itself to say anything. Although, to be fair, it has this week signed a deal with Yes bank in India to enable more bond and equity issuance in London, starting with a $500m green bond in January. An Indian housing corporation is also raising money and about 50 Indian companies are listed in London.

Still, why the quietness, the lack of enthusiasm? Perhaps the UK’s financial chattering classes exhausted themselves fawning over the Chinese a few weeks ago. There is also a dopiness and a parochiality to the City of London these days.  It has been so brow beaten by the financial crisis it is incapable of transmitting good news and the rest of the country seems reluctant to listen to it. Cheer up everybody, this is not a market you want to miss.

George Trefgarne is founder of Boscobel & Partners, a communications firm.