HDFC Wants To Raise Funds Overseas. Issues Rs 800 Crore in Domestic Bonds
HDFC, India’s largest mortgage lender and not to be confused with HDFC Bank, is keen to raise funds in overseas markets and is awaiting the Reserve Bank of India’s clarification on the matter.
At the beginning of November the RBI said it would allow Housing Finance Company’s (HFC’s) to borrow short term from abroad temporarily. In an interview with the Economic Times, HDFC managing director Keki Mistry said: “We would like to raise funds overseas and we can do that if allowed. But it all depends on the regulations relating to the size and tenure permitted by RBI.”
Borrowing overseas would bring down the cost of funding for the mortgage lender. Though the RBI has reduced the Cash Reserve Ratio (CRR) and cut the Repo Rate, this has not had the effect of reducing funding costs for HDFC and it continues to pay double digit interest rates to banks, who are offering as much as 10.9 per cent interest on their fixed deposits.
Previously HDFC has obtained funding in a variety of currencies including Yen. Japan being the most attractive currency because of its traditionally low interest rates. Loan proceeds are converted into Rupees immediately and the currency transaction aspect fully hedged by the mortgage lender. What does concern HDFC is tenure of the loan and its cost or interest rate.
Since mortgages are traditionally long term loans with an average tenure of 7 years, HDFC requires long term funding, so it is keenly awaiting RBI guidelines on this aspect. At the time of writing this piece no news had yet emerged on what the RBI guidelines would be.
Along with guidelines on foreign currency borrowings, HFC’s are awaiting an easing of capital requirements in line with the relaxations allowed for banks. National Housing Bank — NHB usually follows the prudential norms on home loans prescribed by central bank.
Last week the ET reported that HDFC raised Rs 800 crore, or US$ 160 million through bond offering with a 10 year maturity and a coupon of 11.95 per cent. ICICI Securities was said to be the sole underwriter for the issue according to Reuters and the deal was bought.
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