Buoyed by firm demand, HDFC Bank mulls fresh Rs 5,000-cr Tier 2 bond sale

After seeing firm demand for a Tier 2 bond sale worth Rs 15,000 crore a week ago, HDFC Bank is likely to come up with another sale of such instruments worth up to Rs 5,000 crore as some investors were unable to get their hands on the earlier issuance, sources said.

Last week’s sale of 10-year Tier 2 bonds by HDFC Bank, which was the single-largest such sale by any lender so far this financial year, saw a coupon of 7.86 per cent being set for the securities. The cut-off was deemed to be an aggressive one by treasury officials, who said the sale had received bids worth more than Rs 24,000 crore.

“Some investors who HDFC Bank had tied up with were likely not able to get the full quantum the last time (at the Rs 15,000-crore bond sale),” a source aware of the developments said.

 “Consequently, HDFC Bank is likely to do one more tranche of a 10-year Tier 2 issue of around Rs 5,000 crore. The size could be a little lower. The cut-off could also be lower than 7.86 per cent for the earlier tranche,” the source said.

On Thursday, yield on the 10-year benchmark government bond closed at 7.29 per cent. Sovereign bond yields are the benchmarks for pricing corporate debt. Over the past few weeks, government bond yields have softened, with yield on the 10-year paper having declined 16 basis points since October 31.

Tracking the fall in government bond yields – and accordingly corporate bond yields – banks have made a beeline to issue Tier 2 debt since late November. The issuances of these bonds since November 28 have outstripped the quantum raised through additional Tier 2 bonds so far in the entire year, traders said.

Since November 28, banks have issued Tier 2 bonds worth a total of Rs 22,700 crore, against Rs 22,534 crore worth of additional Tier 1 bonds issued so far in the financial year, treasury officials said.

The quantum raised through Tier 2 bonds is set to rise much further in coming days as Axis Bank is slated to sell Rs 12,000 crore of such instruments on Friday.

Punjab National Bank, Union Bank of India, Canara Bank, and IDFC First Bank are among the lenders which have tapped debt capital markets via Tier 2 bonds in the past few days.