Tuesday 23 August 2016

HDFC plans second series of masala bonds

MUMBAI: Housing Development Finance Corp. (HDFC) has developed a taste for masala bonds. Weeks after India's largest mortgage lender sold out its first issuance of rupee-denominated debt to overseas buyers, it's planning to raise another Rs 2,000 crore through the same route, underscoring a trend that's gaining momentum. HDFC's masala bond sale last month was the first by an Indian company. The home loan
provider is in talks with investment bankers to launch the issue in the next three to six weeks, three people with knowledge of the matter told ET. HDFC didn't respond to emailed questions till press time.

"The company will soon appoint bankers based on bids received from them. The second bond sale is likely only after the new governor assumes charge at RBI," said one of the persons cited above. Urjit Patel will take over from Raghuram Rajan as Reserve Bank of India governor early next month, the government said on Saturday. The appointment is expected to clear policy uncertainties, boosting the confidence of overseas investors.

More masala bond sales are on the way as yield-hungry investors seek out emerging market securities that offer higher returns, several people told ET, amid zero and negative interest rates in Europe and Japan. A relatively stable rupee-dollar exchange rate gives India an edge among peers as investors don't need to hedge their positions, saving on costs.

HDFC had raised Rs 3,000 crore from the sale of rupee-denominated bonds in July breaking a year-long jinx, meeting with a better-than-expected investor response. The sale of the three-year, 8.33% bonds was managed by Axis Bank, Credit Suisse and Nomura. Pricing for the next set of bonds is expected to be 40-50 basis points tighter given the demand. A basis point is 0.01 percentage point.

Buyers in the first round included Blackrock, the government of Singapore, Allianz Bernstein, the private banking arm of Credit Suisse and Bluebay Asset Management. The bonds are listed on the London Stock Exchange.

Following HDFC, state-owned utility NTPC and Adani Transmission raised Rs 2,000 crore and Rs 500 crore, respectively, by selling such securities to offshore investors.

With the government focusing on its housing-for-all theme, HDFC needs to raise funds to lend. In the June quarter, it reported a 38% rise in standalone net profit to Rs 1,871 crore.

Credit expanded 17% to Rs 2.66 lakh crore (excluding securitized loans) from Rs.2.31 lakh crore a year ago. Close to three-fourths of the credit book is accounted for by individuals.

The government is being lobbied to scrap the 5% withholding tax on masala bond gains to encourage investors further. 

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