Employee Provident Fund Organisation (EPFO), one of the largest investors in corporate bonds, has subscribed more than 65% out of Rs 10,000-crore bonds issued by Housing Development Finance Corporation on Tuesday, and this was followed by SBI pension and provident funds, people aware of the development said. This is first-time EPFO has invested in bonds issued by any private entity since the default of Infrastructure Leasing & Financial Services Ltd (IL&FS) in late 2018.
HDFC raised Rs 10,000 crore through the issuance of non-convertible debentures maturing in 10-years at a 7.18% annualised coupon rate. The coupon set on the bonds is merely 17 basis points higher than the new 10-year benchmark bond annualised yield and 6 basis points lower than state loans having similar maturity.
Considering the demand from EPFO, other issuers having AA and above ratings may tap market to avail better rates and strong demand from large segment of investors, a dealer with a brokerage firm said.
EPFO has stopped their investments in bonds issued by private companies but remained active investors in state-owned companies’ bonds. This is because, they had faced a lot of pressure after the default by IL&FS and group companies, Deewan Housing Finance Corporation, and Reliance Capital on their debt instruments.
But, recently, after investment in HDFC, trends seems to be reversing because they are seeking more investment opportunities in the absence of supply in government securities and low issuances by state-owned entities in corporate bonds.
The home finance company is unlikely to tap the market by the end of the year after heavy fundraising since December. According to the data compiled from market sources, HDFC raised Rs 14,500 crore in the last three months, of which a major chunk was in the first week of December.
