 "HDFC to raise $750 million via 'masala' bonds")
Housing Development Finance Corporation (HDFC) has become the first Indian company to receive an in-principle board approval to raise rupee-denominated bonds abroad, also called masala bonds. On Monday, the company’s board approved raising up to $750 million through this route.
“This is an in-principle approval we got from the board. Details on how to go about it will be decided in the next few months,” said Keki Mistry, HDFC’s vice-chairman and chief executive.
Though clarity is awaited on parameters such as withholding tax structure, HDFC had said it is hopeful of raising funds through this route this financial year. Earlier, Indian Railways Finance Corporation had said it would seek to tap this funding route.
The Reserve Bank of India has allowed corporate houses to issue rupee-denominated bonds with a maturity period of at least five years in foreign locations, within the ceiling of foreign investment permitted in corporate debt ($51 billion). The central bank said there would be no restriction on the end use of the funds raised in this manner, except a small negative list.
“The other approval we have got is to come up with a level-I American depositary receipt (ADR), which does not involve the issue of fresh capital; it is only conversion of existing shares into ADR. It creates a larger platform of people who could buy the shares,” Mistry said. The ADR programme will be up to 10 per cent of HDFC’s issued and paid-up share capital. At current market prices, it would mean conversion of equity shares into ADRs worth as much as Rs 20,700 crore.
Mistry said the board had given an in-principle approval for a level-I ADR because the Securities and Exchange Board of India (Sebi) was expected to come out with rules under which global depository participants could trade on ADRs on their own for Indian companies. “These are called unsponsored ADRs. If we were to allow that to happen, it creates a lot of undirected trading, over which we do not have control. Therefore, we have taken an in-principle approval from our board to create a platform on which we carry out a sponsored ADR,” he said, adding details on when and how this would be carried out would depend on Sebi’s final guidelines on the matter. With this, the company’s investor base would be broadened, with entities in the US being able to buy shares through the ADR.
On HDFC Life’s initial public offering (IPO), HDFC had announced in August that Standard Life (its foreign partner) had the option to buy a certain percentage of HDFC Life shares from HDFC.
"They had the option to go up to 49 per cent. They had decided not to go up to 49 per cent. They will ultimately go only up to 35 per cent. Currently, their shareholding is 26 per cent. They will buy 9 per cent shares from us. For that 9 per cent, recently application has been made to FIPB. IRDA has recently come up with some changes that are required in the shareholders agreement. That is currently being worked on. My sense is once this transaction is completed, then we will look to file for an IPO," Mistry said.
Meanwhile, the capital adequacy ratio of HDFC after reducing the investment in HDFC Bank from tier I capital, stood at 16.1 per cent, of which tier 1 capital was 12.8 per cent and tier II capital was 3.3 per cent.
