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HDFC Bank raises $500 mn in overseas bond sale at 3% coupon

This is part of HDFC Bank's $1-bn overseas bond sale

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, the second largest private sector lender whose shares command the highest premium in the market across the world, has successfully sold a $500- million five-year bond at 3% coupon, its lowest yet.

The $500-million unsecured senior bond issue, which saw 10-times demand or $5 billion, over the issue size, is part of HDFC Bank's $1-billion (medium term note). The money was raised through its Bahrain branch over the last weekend, StanChart, one of the merchant bankers to the issue told PTI.

At 3% coupon makes it the lowest for the bank ever and also the cheapest this fiscal, StanChart said.

"HDFC Bank achieved the lowest ever coupon/YTM (yield- to-maturity) achieved for any domestic issuer and the tightest bank issuance spread in recent months, for a five-and- half-year issuance," Jujhar Singh, MD, capital markets at StanChart India, told PTI over the weekend.

"The final spread was tighter than fair value for a new five-year US dollar-bond issuance for SBI implied by the secondary trading levels (222 bps over US treasury now), which is a feat for a debut USD bond issuance," Singh said.

The fixed rate senior unsecured notes or Regulation S bonds (RegS bonds) raised in US dollar, carry a coupon of 3% per annum payable half yearly and mature in 2018, he said, adding, "The pricing got tightened by 25 bps from the initial guidance and 5 bps from the final guidance to 230 bps over the US treasury as investors lapped the opportunity to buy into the domestic banking sector."

Regulation S bonds or RegS bonds are those offered to non- US residents and qualified institutional buyers (under an exception to US securities laws enacted in 1990) and do not enjoy the same legal protection as other issues enjoy.

The bonds attract a coupon of 3% and are priced at 99.687 to yield 3.068%, which represents a 230 bps spread over the US treasuries, he added.

However, HDFC Bank refused to comment on this.

"The T+230 bps spread confirms investor recognition of HDFC Bank's strongest credit metrics (vis-a-vis all other domestic banks), and establishes a new tight benchmark for domestic private sector bank issuers," he said, adding that it was able to get such a tight deal thanks to the USD 5-billion worth of demand from more than 250 accounts.

The other investment bankers to the HDFC Bank bonda sale programme included Bank of America Merrill Lynch, Citi, and JP Morgan.

Singh attributed the low pricing to HDFC Bank's strong and consistent financials. For the 53rd qurter in a row, the bank reported over 30% spike in net profit in the December quarter.

On investor profile, Singh said fund managers booked 48%, banks 25%, insurers 8%, sovereign wealth funds 6% and private banks 13%. "The strong investor response to the transaction resulted in tightening of secondary spreads of the bonds of other domestic banks during the day."

By region, he said 65% came from non-Japan Asia, 22% from Europe, 7% from the Middle East and 6% from offshore US accounts.

The bonds, which  will be listed on the Singapore bourse, carry a Baa3 rating by Moody's and BBB- by S&P. Last Monday the bank had launched a road-show in Hong Kong, Singapore and London for the issuance.

It can be noted that 2013 saw many large coprorates like Reliance Industries, ICICI Bank, Exim Bank, PowerGrid, Tata Com, raising foreign debt. On January 7, Exim Bank had raised USD 750 million in a European bond sale at the cheaper ever rate of 4% for a 10-year money, getting an over- subscription of 8.5 times.

Within a week, state-run distribution utility PowerGird raised USD 500 million at 3.87% for a 10-year USD issue which got an oversubscription of 19 times. Mid-January, private lender ICICI Bank had mopped USD 225 million from a seven-year Singapore bond sale programme on January 10.

End-January saw Reliance Industries, despite sitting on a cash balance of over Rs 80,000 crore, hitting the bond street with a USD 800 million perpetual bond issue, the first by a domestic company.

It so far this fiscal raised over USD 4 billion in foreign debt, including the USD 1.5 billion its US subsidiary raised last October in a 10-year money.

The last week of the past month also saw Tata Communications becoming the first domestic un-rated corporate to tap overseas financial markets by selling bonds worth 250 million Singapore dollars at a coupon of 4.25%, which got an oversubscription of 14 times the offer.

It can be noted that last year domestic corporates raised USD 8.15 billion in dollar, euro or yen money from Asian markets, while so far this year the figure has already touched USD 3.25 billion, as rupee funds are too hot to borrow on the back of high interest rates in the country.

Last Monday, Bharti Airtel had hit the overseas market with a road-show to mop up USD one billion. More domestic borrowers are expected to access overseas markets for funding as rupee funds are still a costly affair.

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