HDFC to raise Rs 5,000 crore via quasi-debt issue, to offer NCDs, warrants to FIs simultaneously

MUMBAI: Housing Development Finance Corporation (HDFC) is likely to raise roughly Rs 5,000 crore through a structured quasi-debt offer to domestic institutions soon. The mortgage lender is likely to simultaneously issue non-convertible debentures (NCDs) and warrants to investors that could help it raise funds at a cheaper cost. HDFC and its bankers are aiming to launch the issue in the next couple of weeks and have sounded out local institutional investors, said four people aware of the matter.

NCDs fetch investors a fixed interest payment till maturity, while warrants allow investors to buy a fixed number of shares in the company at a pre-fixed date and price. Six years ago, HDFC was the first entity to raise money through combination of NCDs and warrants, almost six months after the Securities and Exchange Board of India ( Sebi) allowed such a product. In August 2009, HDFC mopped up Rs 4,300 crore, of which Rs 4,000 crore were through NCDs and Rs 300 crore through warrants at Rs 275 apiece.

The people cited did not disclose details of the upcoming NCD-cum-warrant issue by HDFC. But, this time the coupon rate of the NCDs could be much lower compared to the issue in 2009. The coupon rate could be as low as 1-3% compared to over 7% in the previous issue, said a person familiar with the transaction. To sweeten the deal, HDFC may lower the premium on warrants, and the conversion period could be less than the ones issued five years back.

“This time, the structure could be different. The exact NCD coupon rate and warrant premium have not been finalised yet,” the person said. “This structure will reduce HDFC’s cost of borrowing”.

In August 2009, each HDFC warrant could be converted into one HDFC share at Rs 3,000 per share after three years. Since the warrants were priced at Rs 275 apiece, the cost was Rs 3,275 per warrant, which was almost a 50% premium to HDFC’s closing price then.

A HDFC spokesperson did not respond to e-mailed queries.

In the upcoming NCD-plus-warrants offering, HDFC might have to rely on mutual funds to help the issue sail through. This offering is exclusively for domestic institutions because foreign investors cannot buy convertible warrants whose tenure is less than three years. It is not clear whether domestic insurance companies can subscribe to convertible warrants.