Housing Development Finance Corp. priced its biggest ever rupee bond issuance ahead of a merger with its banking unit, which will create an Indian financial services behemoth valued at more than $200 billion.
(Bloomberg) — Housing Development Finance Corp. priced its biggest ever rupee bond issuance ahead of a merger with its banking unit, which will create an Indian financial services behemoth valued at more than $200 billion.
India’s largest mortgage lender will raise 250 billion rupees ($3 billion) selling notes due in a decade at a coupon of 7.97% on Friday, according to people familiar with the matter. The proceeds will be used to support its housing finance business, said the people, who asked not to be identified discussing confidential information.
HDFC is stepping up borrowing from notes because its merger with HDFC Bank Ltd. will make accessing the bond market more difficult. The merged entity will be classified as a bank, which means it can only raise funds through bonds either to meet capital requirements or for funding infrastructure projects.
The merger is expected to conclude next quarter, and will give HDFC access to so-called low-cost current and savings account deposits and time deposits of the bank that will let the financier continue expanding its assets, which stood at about 7 trillion rupees at the end of December.
HDFC was India’s top seller of rupee bonds last year, according to data compiled by Bloomberg. The yield on 10-year sovereign bonds have eased 5 basis points since Wednesday as traders speculated that the financier will hedge this bond borrowing through total return swaps, a rare trade HDFC used last year.
The contract is called a total return swap because it allows the receiver to get returns on the underlying asset, in this case government bonds, without having to fund the assets on its balance sheet.
“HDFC’s hedge programme is an ongoing exercise based on the Corporation’s residual balance sheet, interest rate risk positions and assessment of market levels,” HDFC’s Executive Director V S Rangan replied in an email to Bloomberg News seeking comment on whether the company will opt for a swap.
Biggest Merger to Shake Up India Debt Market as Top Seller Exits
Axis Bank Ltd., HDFC Bank, ICICI Bank Ltd. and ICICI Securities Primary Dealership Ltd. are the arrangers to the issuance, the people said.
–With assistance from Subhadip Sircar.
(Updates with details, company comment in fifth, sixth and seventh paragraphs.)
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