HDFC raises Rs 3,000 cr via India's first masala bonds

Housing Development Finance Corp (HDFC), India’s largest home finance company, raised Rs 3,000 crore through the country’s first masala bond issuance at 8.33 per cent for a paper maturing in 37 months. Masala bond refers to a bond through which Indian entities can raise money from foreign markets in rupee, and not in foreign currency.  HDFC’s bonds bear a fixed semi-annual coupon of 7.875 per cent, the same as what it

could get the money onshore, but the company had to compensate for the additional tax the investors would incur. Therefore, the all-in annualised cost came at around 8.33 per cent per annum. That is not surprising as the company had communicated earlier that it wanted to carry its legacy of being a pioneer in bond issuances. HDFC originally issued Rs 2,000 crore of bonds, with an intention of retaining Rs 1,000 crore of over-subscription.The final order book was Rs 8,673 crore from 48 accounts, which is 2.9 times of the amount, including the greenshoe option. Of the bonds, 86 per cent was taken by Asian investors, while the remainder was claimed by European ones.Institutional investors made up 82 per cent of allocations and private banks 18 per cent, HDFC said in a statement. Credit Suisse, Nomura and Axis Bank acted as the joint book-runners and lead managers for the issuance, which was listed on the London Stock Exchange. The bond was issued outside the United States. Upon opening, the transaction immediately attracted strong interest from high quality institutional accounts with the deal covered within couple of hours after the books opened. During the course of the next two days of book-building both institutional and private bank continued the momentum,” said Gaurav Pradhan, managing director, of Credit Suisse India.

By tapping the market, HDFC will lead the way for many other top rated Indian companies which could find it convenient to raise money through the international market. But owing to the investors taking the currency risk, the premium could be slightly higher. According to investment bankers, some public sector undertaking companies are also exploring the space for their own issuances. HDFC said it would use the proceeds for the housing finance business of HDFC as well as for general corporate purposes.

“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, adding the issuance established a significant benchmark for Indian companies.

“The success of this issuance shows the support of the global markets for high-quality Indian companies,” said Nikhil Rathi, chief executive officer of London Stock Exchange, adding the bourse would look forward to building this market with Indian partners and authorities over the long term.