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Business News/ Companies / HDFC to list masala bonds in London
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HDFC to list masala bonds in London

HDFC intends to raise an equivalent of $750 million through masala bondsan instrument that has recently been made available to Indian companies

A file photo of the London Stock Exchange. Photo: BloombergPremium
A file photo of the London Stock Exchange. Photo: Bloomberg

Mumbai: India’s largest mortgage lender Housing Development Finance Corp. Ltd (HDFC) will list its overseas rupee-denominated bonds, or masala bonds, on the London Stock Exchange.

The intent for the listing was announced on the sidelines of Prime Minister Narendra Modi’s ongoing visit to the UK.

HDFC intends to raise an equivalent of $750 million through masala bonds—an instrument that has recently been made available to Indian companies. HDFC’s board had approved the fund raising in October.

“There is renewed vigour in the India-UK relationship and HDFC is delighted to announce its intention to list its bonds on London Stock Exchange. UK is the global hub for financial services and the Reserve Bank of India’s guidelines permitting overseas rupee-denominated bonds, will open up a new source of funding for us," said Deepak S. Parekh, chairman, HDFC.

So far, only the International Finance Corp., a unit of World Bank, has issued such masala bonds. These bonds are also listed on the London Stock Exchange.

With its issue, HDFC will become the first private issuer of such bonds. The timing and the pricing of the bonds to be issued by HDFC are still to be finalised.

“This milestone issuance, the first of its kind globally, is a significant development for private sector Indian companies looking to access international capital to finance Indian infrastructure projects. London Stock Exchange is the leading international exchange for offshore rupee-denominated masala bonds and we look forward to working with other companies to launch programmes similar to the one announced today," said Nikhil Rathi, chief executive of London Stock Exchange.

“London Stock Exchange has more Indian companies listed on our equity and debt markets than any other international market," he added.

Masala bonds allow companies to tap the overseas bond markets to raise funds but take away the currency risk associated with overseas fund raising since the bonds are issued in rupees. The currency risk in such an issue is borne by the investors who build it into the pricing of the issue.

Separately, the London Stock Exchange also signed a memorandum of understanding with Yes Bank for a collaboration around bond and equity issuance, with particular focus on green infrastructure finance.

As part of the agreement, Yes Bank plans to list a green bond of up to $500 million on the London Stock Exchange by December 2016 and to raise further capital in London, potentially through the listing of Global Depository Receipts (GDR) as part of its overall $1 billion of equity capital-raising plans.

On 26 October, Mint reported that India Infrastructure Finance Co. Ltd (IIFCL), Indian Railway Finance Corp. Ltd (IRFC) and NTPC Ltd are among other companies laying the groundwork to issue rupee-denominated bonds.

In a note issued on 4 November, rating agency Fitch Ratings noted that while the ability to issue bonds offshore in rupees gives companies the opportunity to diversify funding sources, the market may initially be limited to only a few.

“The ability to diversify funding would be credit positive, but in the early stages of development the market will likely be restricted to better-quality issuers or ones with some degree of name recognition in the local markets," said Fitch.

Fitch added that investment grade state-owned enterprises and large non-bank financial institutions will probably be the handful of companies who will be in a position to use this instrument.

“Smaller, sub-investment-grade issuers may not find the masala bond market practical. Notably, foreign-investor interest has yet to be tested, and will be affected by sentiment regarding the rupee/US dollar exchange rate and other macro factors," said Fitch.

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Published: 13 Nov 2015, 01:29 AM IST
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