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Source: The Hindu BusinessLine
HDFC Bank's record dollar bond sale makes it top issuer under RBI window
HDFC Bank has raised a record-breaking amount of money through new dollar bonds. This move places the bank at the top of the list for foreign fund collections.
HDFC Bank has made history by raising $1.75 billion through a single dollar bond sale. This is the largest one-time debt fundraising ever done by an Indian bank. The bank used its GIFT City branch to issue these bonds in two parts. One part raised $1.25 billion for five years, and the other raised $500 million for three years.
With this latest move, HDFC Bank has now raised a total of $2.50 billion since June. This puts them at the number one spot in India for dollar bond sales. ICICI Bank is currently in second place, having raised $2.05 billion. Investors were very excited about this deal. They offered to lend the bank $7 billion, which was much more than HDFC Bank originally expected.
A bond is a way for a bank to borrow money from investors for a fixed time. When these bonds are in dollars, it is called a dollar bond sale. HDFC Bank is taking advantage of a special window opened by the Reserve Bank of India (RBI). This window allows banks to raise foreign money more easily. The RBI recently announced that this special facility will close on August 31, a month earlier than planned.
The cost of this borrowing was cheaper than expected because so many people wanted to buy the bonds. The three-year bonds were priced at 88 basis points over U.S. Treasuries (a basis point is 0.01%). The five-year bonds were priced at 100 basis points over. Even though this was higher than what HDFC paid in June, it was still considered a very strong result for the bank.
Most of this money will be used to provide loans to customers who are depositing funds under a special dollar deposit scheme. The RBI expects nearly $80 billion to flow into the Indian banking system through these various schemes. This helps the Indian economy by bringing in more foreign currency. For bank officers, this shows how important GIFT City has become for global banking operations.
Market experts from CreditSights say HDFC Bank is performing very well. They had predicted slightly higher costs, but the bank managed to get a better deal. Aspirants should note that GIFT City is now a major hub for these large international deals. As the August 31 deadline nears, more banks might rush to complete their own fundraising deals to match HDFC's success.