HDFC Bank Raises Rs 7,425 Crore Through Maiden Infra Bond Issue After Merger

This was the first debt sale by the banking heavyweight after its merger with Housing Development Finance Corp. in July. The bank intended to raise Rs 10,000 crore through the issuance of infrastructure bonds, with a base issue size of Rs 5,000 crore and a greenshoe option of the same amount.

The bank had received 75 bids worth Rs 8,700 crore, according to the people quoted above, who spoke on condition of anonymity.

HDFC Bank did not respond to the email sent by NDTV Profit at the time of publishing.

While the prevailing macroeconomic conditions are pretty much congenial for entities to raise funds through the domestic bond market, banks are unable to raise the entire amount, according to experts.

"Few banks have tried to raise capital through the bond markets and couldn’t succeed in accepting the entire issue amount due to pricing issues, besides comparatively lesser investor participation," said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

After the Reserve Bank of India increased the risk weightage on consumer credit, banks have been scrambling to raise funds for their future capital requirements through other avenues. This, along with favourable market conditions, has flushed the debt market with several bond issuances, Srinivasan said.

"Investors want higher yields. Issuers, on the other hand, want aggressive pricing," he said. Bond prices and yields move inversely.

Further, the government bond yields eased last week due to the expectations of monetary policy easing by the U.S. Federal Reserve next year. This resulted in India's 10-year benchmark government bond trading 12 basis points lower at 7.16% on Friday.

A fall in yields on the government bond makes it cheaper for companies to raise funds through debt as corporate bond yields are benchmarked to sovereign bond yields.

Therefore, corporates, banks and quasi-sovereign entities all rushing in to raise funds through bond issuances leaves investors with options to weigh in the risks and returns, according to Ajay Manglunia, managing director and head-investment grade group at JM Financial.

"Longer term investors, when they allocate money, they look at what is available in the secondary market, in the primary market, where are they getting the best returns," Manglunia told NDTV Profit. "In that process, they choose to buy what is most convincing to them."

"In case of HDFC Bank, the quantum could have been the entire Rs 10,000 crore had they relaxed the interest rates to some extent," he added.

Apart from HDFC Bank, several banks including State Bank of India, Canara Bank, ICICI Bank Ltd. and Bank of Baroda have issued infrastructure bonds in the last couple of months. Nabard, too, is looking to raise Rs 10,000 crore through infrastructure bonds, with a greenshoe option of Rs 5,000 crore.

"The normal curve for PSU 'AAA'-rated papers, it is somewhere about 7.65-7.67%. And this was the level for IRFC a day before ... it was 7.67-7.68%," Manglunia said. "I think it is a good spread for the issuer, 3-4 basis points. But, the investors' expectation could be slightly higher."

Investors prefer parking their funds to quasi-sovereign issuers such as Nabard, IREDA, IRFC and more, because it is safer and liquid, Manglunia said.

Another reason for firms to increasingly tap infrastructure bonds for long-term capital is a cushion from a regulatory perspective. Funds raised through infrastructure bonds are deployed for infrastructure lending, where the RBI exempts banks on maintaining statutory liquidity ratio and cash reserve ratio.

Issuers have all the reasons to exploit the tide favouring their might, but investors are doing their own math.