Mumbai: In a sign that India’s corporate bond market is gaining depth, the country’s largest mortgage lender, Housing Development Finance Corp. Ltd (HDFC), last week raised Rs1,000 crore through a sale of 15-year bonds.
The bonds were placed privately with pension funds at an annual rate of 8.96%. HDFC had planned to raise Rs500 crore, with a so-called greenshoe option of raising an additional Rs500 crore in the event of sufficient investor demand.
Both were fully subscribed, said HDFC’s executive director V. Srinivasa Rangan.
“The corporate bond market is deepening in India and we are getting confident in accessing this market,” he said.
India’s corporate bond market has never quite taken off despite attempts by regulator Securities and Exchange Board of India (Sebi) and the government to boost trading. Average daily trading has so far not exceeded $1 billion (around Rs4,440 crore)—the global average is $1.5 trillion.
But signs that activity in the corporate debt market is increasing have been showing up in recent numbers, helped in part by new reporting rules enforced by Sebi.
Total trading in corporate bonds more than doubled from an average of Rs1,550 crore in October 2009 to Rs3,356 crore in March 2010. This is the total amount that has been reported in both the National Stock Exchange and the Bombay Stock Exchange as well as the Fixed Income Money Market and Derivatives Association of India.
“There has been an increase in foreign investment in corporate debt market because of the attractive interest rates here as well as a stronger view on the rupee,” said B. Prasanna, managing director and chief executive of ICICI Securities Primary Dealership Ltd, which was the sole arranger of the HDFC bond sale. “There has also been an increase in domestic participation from mutual funds and other investors in the shorter end (one-three years),” he said.
It was the first time that the mortgage lender had raised money through sale of 15-year bonds, a departure from its usual practice of selling debt of 10-year maturity.
“We raise money through all avenues possible, depending upon what is the cheapest fund available at that point in time,” HDFC vice-chairman and chief executive Keki Mistry said.
HDFC has an annual need of Rs35,000-40,000 crore to lend to its customers. The longer-tenure bonds will help balance its asset-liability profile since all its loans are typically of a longer tenure of between 15 and 20 years.
Ashish Ghiya, managing director of corporate brokerage Derivium Capital and Securities Pvt. Ltd, said the rates offered were “priced okay” for such a deal, pointing out that current yields on 10-year corporate bond were at around 8.80%.
“It was done at 8.96% for 15-year money because there is a lot of demand for investments from long-term investors. This is a good deal for HDFC as they were able to tie up a large amount of money in one shot,” said Prasanna of ICICI Securities.
The size of the issue has also surprised some dealers, considering it was by a private sector entity. So far, only public sector firms have been raising such large amounts from the corporate bond market.
Last month, for example, Power Grid Corp. of India Ltd raised Rs1,020 crore from a sale of 16-year bonds, while Power Finance Corp. Ltd raised around Rs1,470 crore through a sale of 15-year bonds, according to NewsWire18, a business news wire service.
To be sure, the increase in numbers may also be a function of the new reporting rules imposed by Sebi.
On 17 October, Sebi mandated that effective December, all trades in corporate bonds would have to be cleared and settled by a clearing company to eliminate counterparty risk and increase liquidity. Until then, mutual funds or foreign institutions would trade in corporate bonds directly or through a broker without reporting to the regulators.
“It (increase in trades) is a combination of the Sebi order and a favourable interest rate environment,” said Ghiya, adding that high interest rates had attracted foreign institutional investors in the past few months.