HDFC loans: HDFC set to increase offshore loan to $1bn as ECB rules eased

Housing Development Finance Corp is set to become the first Indian borrower to take advantage of the central bank’s relaxed standards on external commercial borrowing, increasing its foreign lending to around $1 billion from $750 million previously, ET told people familiar with the matter. Funding costs will remain the same.

The

() would join the syndication process which has already confirmed participation from Mizuho Bank, MUFG and Standard Chartered Bank, the people quoted above said.

The proceeds will be used by the nation’s largest mortgage lender to lend to buyers of affordable homes at low prices.

and individual banks did not comment on the matter.

The duration of the loan was finally set at three years. The loan could be priced after adding about 115 basis points to the Secured Overnight Funding Rate (SOFR), a global rate indicator.

One basis point equals 0.01%.

“The borrower and the banks are discussing the matter, and the deal is closing,” said an executive involved in the exercise.

The central bank announced last Wednesday a series of measures to shore up depleting foreign exchange reserves and halt the rupee’s fall against the dollar. It created additional space for companies tapping into the offshore lending market, increasing the External Commercial Borrowing Vehicle (ECB) cap to $1.5 billion from the current $750 million.

A local borrower using the BCE option can also offer up to 100 basis points more to international investors; this threshold is currently capped at 500 basis points.

HDFC faces high demand for home loans, increasing the need for additional borrowing resources.

On July 4, ET announced that HDFC plans to raise $750 million via an offshore loan, which will likely be its last ECB before its merger with

.

The six-month SOFR is currently yielding around 2.60%. If the borrower is hedging all the funds, he may have to pay up to 470 basis points more depending on the current cost of hedging against exchange risk in the forward market.

Bond yields rise

HDFC Ltd bond yields are slowly rising after insurance companies were seen to walk away due to a regulatory technicality related to the proposed merger. They were traditional investors in HDFC bonds, considered to be of higher credit quality.

Meanwhile, its yield differential with

another blue-chip non-bank financial company, shrank about 15 to 20 basis points.

The central bank last week approved HDFC’s merger with HDFC Bank. It has a gross loan book of $86.15 billion, with individuals making up about four-fifths of the size.

Individual loan disbursements increased 37% year-on-year in FY22, helped in part by growth in the high-income group. “Overall, we are positive on the merger of HDFC with HDFCB; however, in the medium to long term, the strategy of ramping up housing loans,

(lending to priority sectors) and liability generation will be key to watch,” said in a June 21 note.

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