The first ever ‘curry bond’ was launched this morning at the London Stock Exchange by two Indian companies, giving foreign investors exposure to Indian markets.
Launched jointly by London-based Sun Global Investments and Mumbai-based Zyfin Funds, the ETF offers international investors exposure to a basket of bonds that have 51 per cent or more backing from the Indian government.
To be eligible, bonds require a ‘AAA’ rating from credit agencies and must be issued by companies that are integral to the infrastructure and growth of India, such as power and telecoms.
Launched as a UCITS-compliant ETF, the fund has 100 per cent exposure to the Indian bond markets. The ETF index consists of six sovereign-owned enterprises and has equal asset allocation in each. These include names like the Rural Electrification Corporation, Export Import Bank of India, Power Finance Corporation Limited, Power Grid Corporation of India, Food Corporation of India and Mahanagar Telephone Nigam, the government-owned telecom network. All the bonds listed in this index have an average maturity of just under nine years
The fund is available in both US-dollar and sterling and aims to provide international investors with access to annual yields of around 7 per cent.
Markets welcomed the idea of a ‘masala bond’ (offering exposure to Indian railways) not too long ago, but now we have a ‘curry bond.’ However, in the case of the former, an investor is exposed only to a single corporate issuer but with the latter, there is exposure to a basket of securities.
While the Sun Global ZyFin ETF offers diversification in the Indian bond market in terms of the sectors it offers, the fact only six companies’ bonds make up the index make the range feel limited. The fund managers are positive that the issuers included in the index have a ‘AAA’ credit-rating from international agencies and are 51 per cent government-backed, making it tough for them to default.
The fund will be rebalanced quarterly and if one of the issuers gets downgraded, they will be dropped from the basket and replaced with a new issuer.
Apart from providing easy access and exposure to the Indian markets which, according to analysts, is a bright spot among emerging markets as a whole, the fund is low-cost and aims for a return higher than most funds in the market.
The launch of the ETF is well-timed, especially as the India growth story has started gaining momentum after prime minister Narendra Modi came to power and Raghuram Rajan took over as the governor of India’s central bank.