HDFC Bank to raise Rs 1,500 cr through tier-II bonds

Private sector lender HDFC Bank plans to raise Rs 1,500 crore through private placement of bonds. Though the bank is in talks with a couple of investors, it has not appointed an arranger for the issue yet.

With a maturity period of 15 years, the bonds also have a call option after 10 years. The upper tier-II category bonds have a coupon rate of 9.48 per cent, according to market sources. The deal is likely to be sealed next week. HDFC Bank could not be reached for comments.

Tier-II capital is secondary bank capital that includes undisclosed reserves, general loss reserves and subordinated term debt.

The Employees Provident Fund Organisation (EPFO) is reported to be one of the investors in the issue. In 2006, EPFO was allowed to invest in AAA rated bonds of private sector banks. HDFC Bank’s bonds too, are AAA rated. Other likely investors include large insurance companies.

Analysts say the interest rates are cheaper than what they were a few months back. “The bank is probably looking at raising long-term funds at a relatively cheaper rate, since there it would need funds one year down the line,” said a banking analyst with a domestic brokerage.

Currently, State Bank of India (SBI) bonds are being traded at yields between 9.00-9.35 per cent. “So, a spread to the extent of 15-20 basis points over the public sector bank is justified for the private sector lender,” said a bond dealer at a domestic brokerage.

According to market players, HDFC Bank is usually among the earliest issuers, since it takes the bond route in the month of April — a period when others are engaged in their annual financial audits. “As a result, bond issuances pick up only towards the second quarter of each financial year,” said a bond dealer with a public sector bank. Also, investor appetite is relatively less, as the government front-loads its borrowing programme in the first half of every financial year. Currently, the government borrows Rs 12,000 crore every week and would complete 60 per cent of its total borrowings by the end of September 2011.

As on March 2011, HDFC Bank’s total capital adequacy ratio stood at 16.2 per cent, compared with 17.4 per cent a year ago. Tier-I capital was also declined from 13.3 per cent to 12.2 per cent. The bank’s net advances stood at Rs 159,983 crore, higher by 27 per cent compared to the corresponding period last year.