MUMBAI: In a first, India’s largest mortgage lender HDFC has successfully sold rupee-denominated masala bonds to offshore investors at five basis points cheaper than its similar domestic borrowings.
With over three-year maturity, HDFC masala bonds have yielded 8.33% annually, against 8.38% it had paid to raise Rs.1,000 crore from the domestic market on Tuesday, sources with direct knowledge of matter told ET. The bond sales received about four-times bids than the actual offer.
The final yield is significantly lower than its initial guidance, which was 8.45%, something that could have benefited the borrower.
In a late evening press release, HDFC confirmed the matter.
“This is a milestone transaction for HDFC. We have successfully achieved our objective of attracting a global pool of capital to further diversify our borrowing profile,” said Deepak Parekh, chairman of HDFC.
“The positive investor response towards this issuance reinforces the blue-chip positioning of HDFC, and establishes a significant benchmark for Indian companies.”
With this sale, masala bonds, a non-starter for about a year, have kick-started its journey.
“HDFC has always been a pioneer in the Indian financial market and we have successfully launched a new financial product in the overseas markets,” said Keki Mistry, vice-chairman of HDFC.
The bonds will be listed on the London Stock Exchange, and the issue proceeds will be used for the housing finance business of the company as well as for general corporate purposes, HDFC said.
Axis Bank, Nomura and Credit Suisse were investment bankers to the bond sale. Bankers are believed to have underwritten the bond issue partially or fully, which means, they are supposed to take them on their books in case investors did not subscribe to them.
“Investors across geographies have participated in the sale as global liquidity also helped generating investor appetite,” said Shashikant Rathi, head – treasury and capital markets, Axis Bank. “Pricing was quite tight with investors keeping the faith in HDFC’s strong credentials.” HDFC garnered an order book more than four-times higher than its actual size at Rs.2,000 crore, the core issue excluding an over-subscription of another Rs.1,000 crore.
Earlier in 2015, investors were demanding higher premium over onshore yields as high as 75 basis points. Many issuers including HDFC, Power Finance Corporation had to cancel their bond sales then.
Indian companies were permitted to sell masala bonds in 2015 by finance minister Arun Jaitley, but the process was fraught with difficulties due to tax treatment and worries about liquidity. Bankers were lobbying for the removal of the withholding tax of 5% and to allow Indian institutions to buy these bonds in the overseas market to assuage liquidity fears.
Credits ET Realty