HDFC Bank may buyback, raise coupon on Bahrain bonds

MUMBAI: HDFC Bank could buyback or increase the coupon on its $1.2 billion bonds outstanding issued from its Bahrain branch after the gulf nation lost its investment grade status on Wednesday.

In a notice to the Bombay Stock Exchange ( BSE) HDFC Bank said that it is in the process of carrying out modifications to the structure of bonds issued from its Bahrain branch to make sure that they are insulated from any rating actions on the host country.

The bonds are rated BBB- by Standard & Poor's and Baa3 by Moody’s in line with India's sovereign rating.

However, on Wednesday S&P lowered Bahrain’s long and short term foreign and local currency rating by two notches to BB/B (stable) from BBB-/A3 (negative) citing pressures created due to the rapid fall in oil prices.

“The rating criteria published by S&P restrict the rating of any Bond issued in a jurisdiction to the host country rating. Consequent to the recent rating action on Bahrain, the Bonds issued by HDFC Bank may also be subject to rating action by S&P,” HDFC Bank said.

“Sometimes the bond covenants explicitly mention that any rating downgrade in the market where the bonds have been issued will lead to a rating impact. I think that was the case in these bonds. The option now for HDFC is to either offer a higher coupon or redeem the bonds,” said an investment banker.

HDFC Bank had last raised $500 million by selling successfully sold a $500 million five-year bond at 3% coupon in March 2013.