India’s biggest masala bond issuer HDFC raises Rs 500 crore in offshore rupee bonds

India’s largest mortgage lender Housing Development Finance Corp (HDFC) has raised Rs 500 crore through the sale of rupee-denominated ‘masala bonds’ under its MTN (medium term note) program. The masala bond issue by the country’s biggest issuer of offshore rupee bonds came following a recent announcement by the government on easing taxation on overseas borrowings.

The masala notes carry a coupon rate of 8.75% per annum payable semi-annually for the tenor of 5 years and 1 day, HDFC said in a stock exchange filing. This is higher than the coupon of 6.73% if offered in its last masala bonds sale a year ago. In November last year, HDFC had raised Rs 1,300 crore at the coupon of 6.73% payable half-yearly through masala bonds with a tenor of five years to November 2022.

The masala bonds are unrated and will be listed on the London Stock Exchange’s International Securities Market (ISM), it said. Masala bonds are instruments through which Indian companies can raise funds from overseas capital markets, while the bond investors hold the currency risk.

In September, the Ministry of Finance decided to withdraw tax payable on offshore rupee bonds, as part of its efforts to attract foreign capital to give a boost to Indian currency, which has fallen about 15% against US dollar since January this year. The Indian rupee has also rebounded in recent weeks.

In the recent past, the majority of non-banking finance companies and housing finance companies are facing liquidity crunch and have restricted expanding new loans, due to their failure to raise capital after infrastructure conglomerate IL&FSS defaulted on its several short-term debt obligations and triggered the crisis in the market.

For the quarter ended on September 30, 2018, HDFC reported a net profit of Rs 2,467 crore, an increase of 25% from Rs 1,978 crore in the same quarter a year ago. The growth is loan demand, along with one-time gains from the sale of its mutual fund subsidiary’s shares in the initial public offering, helped the company to post the increase in the profit.