Perpetual bonds could be popular again as HDFC Bank mops up $1 bn

by Tanushree Jaiswal Last Updated: Nov 02, 2023 - 06:30 pm 55k Views
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HDFC Bank, India’s most valued lender, has shrugged off concerns related to AT1 (additional tier) bonds that arose with the crisis at Yes Bank as it raised $1 billion from overseas investors. India’s biggest private-sector bank raised the amount—thehighest ever by a local lender—by issuing the perpetualbondsata coupon rate of 3.7%, it said on Friday.

HDFC Bank intends to use the money to strengthen its balance sheet as the economy is seeing some signs of revival in credit demand with the severe impact of the Covid-19 pandemic recedingand business activity slowly coming back to its normal course. The bonds are US dollar-denominated, direct, subordinated, unsecured, and Basel III-compliant.The notes are rated Ba3 by Moody’s.

They will be listed on the India International Exchange (IFSC). The bond issue was oversubscribed. This indicates interest of offshore investors in perpetual bonds. The HDFC Bank offering is believed to have seen participation from Singapore sovereign fund GIC and many other marquee investors such as BlackRock, Fidelity, AIG, T Rowe Price, Schroder and Investment Corporation of Dubai.

Why it’s important Investor interest in such securities had taken a knock after the Reserve Bank of India extinguished Yes Bank’sAT1 bonds worth Rs 8,415 crore ($1.15 billion) in March 2020. This happened after the RBI seized Yes Bank in line with terms of a bailout plan. The RBI decision, however, had led to losses for investors in those bonds. This episode led to litigation.

Subsequently, the capital markets regulator Securities and Exchange Board of India came up with new rules for domestic sale of such bonds, effectively closing the window for such issues in India. HDFC Bank’s issue may now prompt other companies to tap the offshore market for similar bonds. State-controlled SBI, the largest lender in the country that had launched the first such overseas perpetual bond issue five years ago, had said two months ago that it was mulling a new AT1 issue. It had said this could be denominated either in dollars or in the local currency.

HDFC Bank’s advances aggregated to about Rs 11,47,500 crore as of June 30, 2021, up 14.4% over the same day a year earlier and rising 1.3% over Rs 11,32,800crore as of March 31, 2021. As per the Basel 2 segment classification, domestic retail loans as of June 30, 2021 grew by around 10.5% over June 30, 2020 and remained at a level similar to that as of March 31, 2021.Domestic wholesale loans grew by around 17% year-on-year and around 2% sequentially.

Among loan categories, retail loans grew around 9% over June 30, 2020 but were down 1% as compared to March 31, 2021.Commercial and rural banking loans grew strong at 25% over a yearago and around 4% over March 31, 2021.Other wholesale loans grew by around 10.5% over June 30, 2020 and 1.5% over March 31, 2021.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.

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