Housing finance firms look to raise funds through ECB route

HDFC to raise up to $500 mn; Tata Capital Housing, Dewan Housing Finance set to raise money through ECB

Housing finance companies are planning to raise funds through the external commercial borrowing (ECB) route to diversify their funding requirements. Early this year, Indiabulls Housing Finance had tapped the market and more recently, Housing Development Finance Corporation (HDFC) announced such plans. Tata Capital Housing Finance and Dewan Housing Finance are also likely to tap the market this year.

ECB is an instrument used by companies that facilitate access to foreign funds — bank loans, buyers' credit, suppliers' credit, securitised instruments, credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial institutions.

Confirming the development, Harshil Mehta, chief executive officer, Dewan Housing Finance, said: “Yes, we plan ECBs this year, but it would be too early to disclose any further details on the same.”

Similarly, R Vaithianathan, managing director of Tata Capital Housing Finance, said if a good opportunity comes up, then the company might raise funds through the ECB route. “This is the first time we are planning to do this. The funds will be deployed in affordable housing projects,” said Vaithianathan. The company is also planning to raise funds through a combination of bank loans, borrowings from the market and re-finance facility from the National Housing Bank.

HDFC is planning to raise up to $500 million through ECBs, for which it had received approval from the Reserve Bank of India (RBI). HDFC had informed the exchanges in April about it and the approval from the central bank was valid for six months. In March, Indiabulls Housing Finance had raised $150 million from Qatar National Bank Group under the ECB for low-cost and affordable housing.

“There has been a downward trend in pricing and that is making companies go for ECBs. The costs have come down by 50 basis points in the past one year for well-rated borrowers. More than lower costs, companies are thinking of diversifying their funding pool; so they are tapping this route. Costs have been coming down because of dearth of supplies,” said an international fund arranger.

According to the latest Reserve Bank of India (RBI) data, Indian companies raised $2.39 billion in May 2015 through ECB, recording a growth of 66 per cent year-on-year.