HDFC Bank Goes Abroad for AT1 Bond Sale Amid India Clampdown

Pedestrian walk past an HDFC Bank Ltd. branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

HDFC Bank Goes Abroad for AT1 Bond Sale Amid India Clampdown


India’s HDFC Bank Ltd. sold a riskier dollar bond overseas that helps bolster its balance sheet, in a move that local peers may follow after the market regulator tightened its rules in the domestic market.

The country’s biggest lender by market capitalization priced Additional Tier 1 notes in the offshore market at a yield of 3.7%. Those are unsecured securities with voluntary call options but no set maturity. It’s only the second such deal abroad from an Indian lender after the State Bank of India sold such securities in 2016.

The overseas debt market may beckon other Indian banks, after the country’s seizure of Yes Bank Ltd. last year caused losses for individuals on those securities and prompted regulators to introduce stricter investment rules at home. Sales will be constrained though by regulatory limits on how much foreign-currency AT1 debt that Indian banks can issue.

“We expect further issuance from Indian banks given that the domestic market for AT1 issuance has shrunk following regulatory changes,” CreditSights analysts Yustina Quek and Pramod Shenoi said in a note.

HDFC Bank’s bonds met with strong investor demand, with more than $3.2 billion of orders for $1 billion of debt, according to a person familiar with the matter. 

While Indian banks have largely met their capital requirements, selling more AT1 notes will help them create cash buffers that will let them absorb any more loan losses in a country with world’s worst bad debt ratio. It could also free up funds to extend more loans and make acquisitions. 

The Securities & Exchange Board of India ordered in March that local mutual funds, some of the biggest holders of AT1 debt in the country, treat those notes as 10-year debt from April, 20-year bonds a year later and eventually as 100-year notes from April 2023, forcing them to cut their exposure to these issuances. Valuing these bank bonds as longer-maturity bonds would lead net assets to drop at mutual funds.

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