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MUMBAI : HDFC Bank Ltd raised $1 billion by selling additional tier-1 (AT1) bonds to overseas investors, the biggest such sale by an Indian lender, to strengthen its balance sheet amid a rebound in credit growth after the pandemic’s second wave ebbed, two people aware of the development said.

“The bonds offering received strong demand from investors across markets, and the overall demand was $4.5 billion. The final pricing of the bond is 3.7%, as against the initial price guideline of 4.125%," one of the two people cited above said. Bank of America, Barclays, BNP Paribas, and a few other foreign banks advised India’s largest private lender on the bonds sale.

The robust response to the sale indicates overseas investors have ignored concerns about the AT1 bonds that arose after the Reserve Bank of India extinguished 8,415 crore worth of such securities after it seized Yes Bank Ltd as part of a bailout, causing losses to investors.

“Major investors that participated in the bond offering include Singapore’s state investor GIC and American institutional investors BlackRock and Fidelity," the person added.

Other investors that were part of the bond offering road shows included AIG, T Rowe Price, Schroder and Investment Corp. of Dubai, according to stock exchange filings by the bank.

The widespread losses to individual investors who invested in Yes Bank’s AT1 bonds prompted the Securities and Exchange Board of India to introduce stricter investment rules for local sales of such instruments, leading to a drying out of such sales. The success of HDFC Bank’s offshore AT1 issuance may encourage rivals to look at similar offerings in the overseas market, the people cited above said.

State Bank of India (SBI) was the first lender to raise capital through offshore AT1 bonds in 2016. In June 2021, India’s largest lender said it will raise AT1 capital by issuing Basel III compliant debt instruments in dollar or rupee through a public offer or private placement to overseas and/or Indian investors this fiscal.

AT1 bonds, also called perpetual bonds, carry no maturity date but have a call option. The issuer of such bonds may call or redeem the bonds if it is getting money at a cheaper rate, especially when interest rates are falling.

Many companies have been tapping the offshore debt markets to raise money to take advantage of low interest rates in developed markets and diversify their sources of funding. SBI, UltraTech Cement, Adani Green Energy, Shriram Transport Finance, and Adani Electricity Mumbai have raised capital through offshore bonds in 2021.

The successful bond offering comes a day after RBI allowed HDFC Bank to issue new credit cards after a nine-month ban. For the quarter to June, the bank reported a 16.1% rise in profit to 7,729.64 crore from a year ago.

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