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HDFC Bank’s AT1 bond sale subscribed multiple times

HDFC Bank’s AT1 bond sale subscribed multiple times

18 Aug 2021

Mumbai: HDFC Bank’s $1 billion AT1 bond sale, the largest offshore sale of these papers by an Indian entity, was subscribed several times within hours of its launch Wednesday.

The sale received about $4.25 billion worth of bids, with global investors like GIC Singapore, Blackrock, Fidelity Investment, HSBC Global Asset Management, JP Morgan Asset Management, Lombard Odier and Value Partners rushing to grab the papers, three market sources told ET.

Due to high demand, the pricing was tightened to 3.70 per cent from the initially offered 4.125 per cent, dealers said. Bonds have a five-year call option, an exit route for investors.


“Hdfc bank has opened a new source for raising Tier 1 capital for Indian Banks,” said Gaurav Bhagat, Head Financial Institution, MUFG Bank. This deal will form a reference for others to follow. The blowout investor response underscores the strong credit which resulted in the largest offshore bank capital issuance by any Indian Bank and at the tightest ever coupon.“

The bank, India’s most valuable, retained only $1 billion out of the bids, they said.

HDFC Bank did not comment until press time Wednesday. The bidders could not be contacted immediately.

Real money managers and hedge funds collectively bid for about three-fourth of the issue size. The rest came from private banks and others.

ET first reported about the fundraising on July 7. On July 29, it said the bank hired at least nine investment bankers aiming to raise about $1 billion.

Barclays, JP Morgan, Bank of America, MUFG, Citi, HSBC, Standard Chartered and SocGen were among the banks that helped HDFC Bank raise the money.

AT1, also known as perpetual bonds, adds to a bank’s capital base. Other companies can sell perpetual papers for business purposes other than capital. Such securities do not have any fixed maturity, but generally have a five-year call option that allows an exit route for investors.

“The success of this issuance reflects the strong fundamentals of HDFC Bank and India’s long-term growth story,” said a country head of a foreign lender.

Those papers are always rated a few notches lower than the issuer’s general corporate rating.

HDFC Bank’s AT1 bonds were rated Ba3 by Moody’s, three notches below its deposit ratings. There is a limited likelihood of any rating upgrade in the next 12-18 months due to possible weakness in sovereign rating and the likelihood of rising bad assets in the Indian financial system.

“The AT1 security ratings could also be downgraded if India’s sovereign rating is downgraded, given the high interlinkages between the bank’s creditworthiness and that of the sovereign,” Moody’s said in a note.

At least three more local banks — Axis Bank, State Bank of India, Union Bank of India — are looking to raise AT1 offshore in the coming days. Lenders aim to gear up their capital base sensing loan demand with falling Covid-19 caseloads and expanding vaccinations.