HDFC did it, at cheaper cost! Masala bonds resume journey

MUMBAI: In a first, India's largest mortgage lender Housing Development Finance Corporation or HDFC has successfully sold the rupee-denominated masala bonds to offshore investors at a cost five basis points cheaper than its similar domestic borrowings.

With over three-year maturity such HDFC securities yielded 8.33% versus 8.38% it had paid to raise Rs 1,000 crore selling bonds Tuesday on home turf, sources with the direct knowledge of matter told ET.

The final yield is significantly lower than its initial guidance, which was at 8.45%, a move seen as benefiting the borrower in terms of cost of borrowing.

HDFC could not be contacted immediately for comments.

With this Masala bonds, which were non-starter about a year, have finally seen the light of the day.

Axis Bank, Nomura and Credit Suisse were investment bankers to the bond-sale.

The home loan major seems to have obtained four times higher order book than its core issue size at $200 million.

"HDFC decided to retain the oversubsriptions to the tune of $300 million as mentioned earlier," said one of persons cited above.

The company may soon come up with an official announcement.

Earlier in 2015, investors were demanding higher premium over onshore yields as high as 75 basis points. Many issuers including HDFC, Power Finance Corporation had to cancel their bond sales then.

"With Brexit uncertainty out of the way and the sustained rally seen in the offshore rupee bond yields over the past month on account of the good monsoon and improving corporate earnings growth, Indian issuers are now motivated to try the masala bond market," said Utpal Oza, Managing Director and Head of Investment Banking, Nomura India.

Indian companies were permitted to sell Masala Bonds in 2015 by Finance Minister Arun Jaitley, but the concept was mired in difficulty due to tax treatment and worries about liquidity. Bankers were lobbying for the removal of witholding tax of 5 percent and to permit Indian institutions to buy these bonds in the overseas market to lessen the fear of liquidity.