HDFC Bank has successfully raised $750 million through offshore bonds, marking the first issuance under the Reserve Bank of India's (RBI) special swap arrangement. The bond was priced at 90 basis points above the 5-year US treasury, with a final coupon of 5.067%, the tightest spread for any private sector bank in India.
The bond issuance attracted an order book of $2.1 billion with participation from about 90 investors. Asian investors dominated the demand, securing 68% of the issue, while investors from Europe, the Middle East, and Africa accounted for 32%. Large global asset managers represented 54% of the investors, with global banks and financial institutions taking up 28%.
This move by HDFC Bank is expected to pave the way for other major banks and public sector units to follow suit, leveraging the RBI's 1.5% fixed-rate swap for external borrowings. The swap arrangement allows banks to sell dollars to the RBI and buy them back at a fixed rate, reducing the need for costly hedging.
“It is safe to say that all large public and private sector banks are evaluating the opportunity to raise these funds as we could see some bond and loan raise from local banks starting this month.”
Banker involved in the HDFC issue
The central board of State Bank of India (SBI) is scheduled to meet on June 18 to consider raising funds through debt instruments, indicating a broader interest in the RBI's facility. Public sector units like Power Finance Corp, Rural Electrification Corp, and National Bank for Financing Infrastructure and Development are also expected to benefit, with potential inflows reaching $75 billion.
According to a banker involved in the HDFC issue, "It is safe to say that all large public and private sector banks are evaluating the opportunity to raise these funds as we could see some bond and loan raise from local banks starting this month."
Background
The RBI's special swap arrangement is part of a broader strategy to attract foreign currency and stabilize the Indian economy. This initiative comes amid global economic uncertainties, providing banks with a cost-effective tool to manage their foreign currency liabilities.
Looking ahead, market participants will be watching closely as other banks and public sector units potentially tap into this facility, which could significantly impact the flow of foreign capital into India.
