HDFC Bank Set To Launch Five-Year Dollar Bonds, May Raise More Than $500 Million

HDFC Bank is looking to raise at least $500 million through a dollar bond sale this week, becoming the latest Indian lender to tap the Reserve Bank of India's subsidised hedging facility for overseas borrowings, according to sources familiar with the matter.

The country's largest private sector lender plans to issue five-year bonds with initial price guidance set at 120 basis points above the yield on five-year US Treasury notes, the sources said. At 2:54 PM, HDFC Bank shares were up 1.02% on the National Stock Exchange (NSE).

RBI Facility Drives Overseas Borrowing Interest

The planned issue follows the Reserve Bank of India's decision earlier this month to offer a swap facility for eligible external commercial borrowings.

Under the scheme, external commercial borrowings with an average maturity of at least three years by banks and state-owned companies can access a swap facility at a fixed rate of 1.5% per annum, compounded semi-annually.

The facility reduces hedging costs for overseas borrowings and is also aimed at cushioning pressure on the rupee. The RBI move has triggered interest among Indian lenders looking to access foreign currency funding at a lower effective cost.

It was earlier reported that state-run lenders State Bank of India and Bank of Baroda were also exploring overseas dollar fundraising using the same route.

Funds To Support Overseas Operations

According to a term sheet cited by the sources, HDFC Bank intends to use the proceeds for several purposes linked to its international business.

The funds will help meet the financing requirements of the bank's overseas branches and subsidiaries. The money will also support expansion plans at foreign offices and be used for general corporate purposes.

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Merchant bankers estimate that the RBI facility could attract between $15 billion and $20 billion of overseas inflows over the next six months as banks and government-owned entities take advantage of lower hedging costs.

HDFC Bank’s proposed bond issue is expected to be among the largest transactions undertaken through the RBI-backed mechanism since the facility was announced earlier this month.

Sources:

The Hindu Businessline

The Economic Times