India's HDFC set to raise Rs.3,000 crore through masala bonds
India's biggest private-sector bank, Housing Development and Finance Corporation (HDFC) is looking to raise up to Rs.3,000 crores by means of issuing synthetic bonds. It is the first ever Indian company to issue synthetic bonds to raise funds. The bank is looking to tap investors globally, with the aim of enabling the lender to set a model for non-traditional forms of investment instruments.
What are masala bonds?
Masala bonds, or synthetic bonds refer to those instruments which Indian firms may avail to help raise funds from foreign markets, in the rupee. The name 'masala bonds' was coined by World Bank's IFC when they had first raised funds to aid projects in India.
RBI gives approval to issue masala bonds
Late last year, India's central bank gave the nod to Indian companies to issue rupee-based synthetic bonds, or 'masala bonds', to help raise funds for these entities from markets abroad. The minimum maturity period was stipulated as five years. RBI also restricted the amount that the companies may raise to $750 million per annum, and any amount beyond this will require RBI's approval.
RBI looks to package appealing 'masala bonds'
In April this year, the central bank decided to increase the reach and appeal of the synthetic bonds being issued by Indian entities. From the previously stipulated maturity period of five years, the bank shortened the maturity to three years. Most critics still claimed that this would not benefit Indian markets, unless the 5% withholding tax the investor has to pay is revised.
HDFC's plans on issuing the masala bonds
HDFC said that the bonds will be of fixed coupons, with a tenure of 3 years and a month, helping it to raise over Rs.2,000 crores, along with an option of another Rs.1,000 crores to be retained as over-subscription. This over-subscription will be enabled for investors outside of the US. The bank has roped in Axis Bank, Nomura and Credit Suisse as financial managers.
Synthetic bonds to be issued this week
"The corporation proposes to list the notes on the London Stock Exchange and the pricing will take place on or before Friday, July 15, subject to market conditions and settlement shall be in the following week," the bank said in a statement.
