HDFC Bank Raises $1 Billion From Offshore AT-1 Bond Issue
HDFC Bank's offshore bond issue saw strong response and was priced below the indicative pricing.
India's largest private lender HDFC Bank Ltd. has raised $1 billion from its maiden offshore issue of additional tier-1 bonds, according to an exchange notification sent by the bank. The issue is the largest of its kind from an Indian bank in the offshore market. It is also the first since 2016 when State Bank of India tapped the offshore markets for tier-1 capital.
HDFC Bank’s AT-1 issue was priced at 3.7%, well below the indicative price of 4.125% laid down at the time of launch. The bonds will be listed on the India International Exchange (IFSC), the bank said.
HSBC, Bank of America, Barclays, Standard Chartered were among the investment banks managing the issue.
The issue, according to a fixed income fund manager with a global fund, saw a strong response as it was the first such issue from India in some time. The fact that it came from HDFC Bank meant that investors were comfortable with the quality of the credit.
Certain features of the bond added to its attractiveness for investors, the person said. For instance, there was no clause of conversion to equity, which helped attract pure fixed-income funds who prefer not to have a conversion clause. In addition, the terms of the bond also said that in the event of skipping of coupon, the lender would also not be paying dividends on equity, this person said.
The issue was rated Ba3 by Moody’s Investors Service.
“The principal and any accrued but unpaid distributions on these capital securities would be written down, partially or in full, if HDFC Bank's common equity tier 1 (CET-1) ratio is at or below 5.5% any time prior to 1 October 2021, and 6.125% from and including 1 October, 2021. In such a scenario, the write-down may be temporary, and the amount could be reinstated subject to the Reserve Bank of India's (RBI) condition,” Moody’s said.
HDFC Bank’s CET-1 ratio stood at 17.2% as of June 30, 2021.
Additional tier-1 bonds have a trigger which can either lead to a skipping of the coupon payment. In scenarios, where the core equity tier-1 ratio falls below a stipulated minimum, the bonds can be written down as well. The same was done in the case of Yes Bank Ltd., where AT-1 securities were written down at the time of reconstruction of the bank.
The episode with Yes Bank prompted the Securities and Exchange Board of India to revise its valuation guidelines for AT-1 securities. The new rules are likely to depress demand for such securities in the local market and push Indian lenders overseas.