HDFC Bank: HDFC to raise $750 million in offshore debt to fund affordable housing

Mumbai: (HDFC) is set to raise $750m in what will likely be its last fundraising via an external commercial route ahead of the mortgage lender’s proposed merger with HDFC Bank, three people familiar with the matter have said .

The proceeds will be used to lend to buyers of affordable homes.

A group of banks, including Mizuho Bank, MUFG and Standard Chartered Bank, are syndicating the five-year line of credit.



The universe of foreign banks may expand later.

“The borrower prefers to exploit the foreign market instead of crowding out the local market,” one of the people quoted above told ET.

The loan can be priced after adding 110 to 120 basis points beyond the SOFR (Secured Overnight Financing Rate) term, an overall rate indicator that currently yields around 2.63%. If the borrower is hedging all the funds, he may have to pay an additional 400 to 450 basis points depending on the current cost of currency hedging in the forward market. One basis point equals 0.01%.

HDFC and individual banks did not comment on this.

HDFC has a total borrowing of $65.83 billion as of March 31, FY22, according to the local financier’s investor presentation. Only about 3% of this comes from external commercial borrowing (ECB) while 40% is raised through local bonds. The rest is divided into term bank loans (25%) and a larger share of public deposits at 32%.

“Housing demand remained strong for both affordable housing and high-end segments,” Sharekhan said in a report two weeks ago.

Management estimates that India’s home loan market would double to $600 billion over the next five years with mortgage penetration estimated at 13% of GDP, which would still be lower than in emerging economies.

“He believes the optimal path to develop housing finance is to be housed within a banking structure,” the brokerage said, citing a comment from management. “The pool of resources for lending will be significantly larger and at lower cost.”

The company is awaiting regulatory approval for HDFC’s proposed merger with

Bank. HDFC has a gross loan portfolio of $86.15 billion, of which individuals account for about four-fifths.

Last week,

raised $100 million from the in a five-year loan. Its price was set after adding 275 basis points to SOFR.

HDFCs and

the country’s leading consumer financial, are rated triple A. Although not strictly comparable in terms of secondary market liquidity and primary bond sales, average yield spreads across the three years, five years and 10 years compressed by about 10 to 15 basis points, dealers said.

This came as life insurers began to steer away from HDFC papers due to regulatory cap complications expected to arise after the proposed merger. HDFC’s credit quality remains sacrosanct.

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