HDFC And HDFC Bank Hit Up Debt Markets
HDFC, India’s largest non banking mortgage lender plans to raise Rs 1000 Crore or US$ 208 million through the issuance of non-convertible debentures. HDFC plans to issue NCD’s worth Rs 200 crore or US$ 41 million, whilst keeping the option open to raise another Rs 800 crore or US$ 150 million through a green shoe.
The Housing Finance Company (HFC) is targeting insurance companies and mutual funds as investors. The capital is expected to be raised within a week of the launch of the issue which occurred last week and the paper yields 9.9 per cent with a ten year maturity. Last month HDFC raised Rs 800 crore or another US$ 150 million issuing the same instrument with the same maturity which yielded 11.95 per cent, underlying the fall in interest rates.
HFC’s have been at a distinct disadvantage to their commercial banking rivals since official interest rate cuts have had the effect of reducing funding costs for commercial banks as they cut the interest rates they pay to depositors. HFC’s obtain funding either from the capital markets or through cash advances from commercial banks and therefore have less ability to reduce their mortgage lending rates. The source of funding for HFC’s is less flexible in terms of interest rates, and they are obliged to wait for creditors to reduce their interest rates or to source new funding before they can pass on any cut in official interest rates to their customers.
Separately, HDFC Bank India’s second largest private sector bank also tapped the debt markets last week raising Rs 1700 crore or US$ 327 million in tier two bonds which paid a coupon of 10.85 per cent. “The negotiations were done before the rate cuts,” Ashish Parthasarthy, deputy treasurer of HDFC Bank, said.
India’s central bank lowered its short-term lending and borrowing rates by 100 basis points each on Dec. 6.
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