HDFC, the mortgage lending pioneer that funds three out of every ten financed homes in India, plans to raise up to ₹12,000 crore in this fiscal’s largest local bond sale, which will be the first such initiative by the financier since its proposed merger with HDFC Bank was announced in early April.
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According to debt market sources familiar with the matter, the home financier is in talks with LIC of India, SBI Pension Funds, and LIC Pension Fund to buy these bonds. Due to strong demand for new homes, HDFC will most likely use the proceeds to expand its loan book.
“Home loan demand is increasing despite all odds,” one of the sources told ET. “HDFC needs to raise money before it becomes more expensive.” “By raising these long-term bonds, the lender hopes to reduce its funding costs before the central bank implements another round of rate hikes.”
ET’s inquiries to HDFC and LIC of India were not answered. Other potential investors could not be reached for comment right away.
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The issue’s base size is 500 crore, with the option of keeping oversubscriptions up to ₹11,500 crore. These secured debt papers, which have 10-year maturities, are expected to yield around 7.86 percent and will be auctioned on Tuesday.
The LIC may buy bonds worth up to 8,000 crore, and HDFC has likely secured commitments for at least ₹5,000 crore of debt. Other pension funds may also purchase bonds worth tens of millions of rupees.
After the proposed merger between the two entities takes effect in the next 17 months, bondholders will eventually own HDFC Bank bonds.
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Although the decision is not final, regulatory changes may allow HDFC bonds to be treated as infrastructure bonds in the merged entity’s books.
The infrastructure bond series from HDFC Bank that matures in 2028 yields between 7.60 and 7.65 percent.
“You might find the latest sale priced on par with state government bonds when you compare the HDFC new bond rate and existing bank bond infra rate,” said a debt market veteran who manages nearly 1 lakh crore.
HDFC raised ₹10,000 crore in the second week of March by offering 7.18 percent, which was about 28 basis points higher than the benchmark yield at the time. In this week’s bond sale, the spread could widen to around 40 basis points.
“Amid a flurry of macro and microeconomic developments, general investor risk perception has changed in the last two and a half months,” said Ajay Manglunia, managing director and head of debt capital markets at JM Financial. “The credit ratings of the group will not be affected by a formal merger with HDFC Bank. Investors, on the other hand, are waiting for more clarity on certain accounting treatments.”
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Both organisations have triple-A ratings.
The home lender announced on April 4 that it will merge with HDFC Bank. According to ET on April 5, long-term bond investors, including insurance and pension funds, have already sought regulatory guidance because the merger is likely to breach sectoral bond investment caps.
According to data from Prime Database, an analytics firm, HDFC and HDFC Bank have nearly 2.12 lakh crore in outstanding bonds and non-convertible debentures. The largest mortgage lender has raised 37,452 crore by selling bonds worth 1,74,356 crore.
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