New Delhi, April 16: Indian companies will continue to tap the London market with masala bonds, despite Brexit fears, and the figure is likely to cross $1.5 billion this year.

The National Highway Authority of India (NHAI), Indian Railway Finance Corporation, NTPC, Power Grid Corporation of India, Indian Renewable Energy Development Agency and Energy Efficiency Services Ltd are among those eyeing the London bond market.

Masala bonds are issued in foreign currencies, but the exchange risk is borne by the borrower that makes it different from external commercial borrowings.

Top officials said moves were afoot for NTPC to issue a bond worth Rs 3,000 crore; NHAI may also opt for a similar investment. PFC is believed to be mulling a Rs 2,000-3,000 crore issue.

A nominal 5 per cent income tax or withholding tax will be levied on the interest earned on these bonds, similar to dollar or euro-denominated bonds.

This concessional rate was initially available till June 30, 2017, but was later extended to June 2020 in the Union budget, making the bond issue profitable.

Capital gains from an appreciation in the rupee's value between the date of issue and redemption against the foreign currency in which the investment is made will be exempt from capital gains tax.

"We will continue to rely on the London money market to raise funds. We have had a good experience with it in earlier issuances, which include HDFC and NTPC, and do not consider Brexit to have any great effect on it. There are a number of factors which make London a more flexible market compared with European and US rivals," said finance ministry officials.

As on February 2017, around 30 masala bonds are listed on the London Stock Exchange, with a combined value of $3.5 billion. However, not all bonds were issued by Indian companies. The International Finance Corporation, the European Bank for Reconstruction & Development (EBRD), the Inter-American Development Bank and the province of British Columbia, Canada were among those opting for the masala bonds.

"Investors in London understand the Indian market long enough. Its true that the Singapore and Dubai markets also understand India, but the London market is way bigger and we acknowledge that. While investing in masala bonds, investors are betting on the long-term stability of the Rupee and London has an appetite for that," said officials.

Investors bet on the long-term growth prospects of Indian bond issuers, besides the stability of the rupee. They are attracted by the high coupon rate, which helps them to make money despite the currency risk.

Coupon rates ranged between 5.1 for the EBRD bond and 8.25 per cent for Inter-American, which raises money for Latin America. HDFC raised money at a 7 per cent rate, while NTPC had a coupon rate of 7.3 per cent.

Officials admitted that though making the Indian currency international is "way off", the masala bonds are baby steps in that direction. "It does have the potential to strengthen the Indian rupee and turn it into more of an international currency," said officials.