HDFC may increase its offshore borrowing to $1 billion

11 Jul 2022 , 08:55 AM

According to a news report from ET, Housing Development Finance Corp is poised to become the first Indian borrower to benefit from the central bank’s relaxed rules on external commercial borrowings by increasing its foreign borrowing to approximately $1 billion from $750 million previously. The cost of funding won’t change.

According to the report, the State Bank of India (SBI) would participate in the syndication process, which has already received participation commitments from Mizuho Bank, MUFG, and Standard Chartered Bank.

The largest mortgage lender in the nation will utilize the funds to make loans to people looking to purchase affordable, low-cost houses.
The loan’s duration has finally been set at three years. After adding around 115 basis points to the Secured Overnight Financing Rate (SOFR), a benchmark rate used around the world, the loan could be priced.

Last Wednesday, the central bank unveiled a host of initiatives to support declining foreign exchange reserves and halt the rupee’s decline versus the dollar. By increasing the cap on the external commercial borrowing (ECB) vehicle from its current cap of $750 million to $1.5 billion, it gave businesses more room to access the offshore lending market.

With the existing maximum of 500 basis points, a local borrower using the ECB option may additionally offer up to 100 basis points more to
foreign investors.

There is a high demand for house loans from HDFC, which increases the requirement for more borrowing capacity.

Currently, the six-month SOFR yields roughly 2.60%. According to the current cost of currency risk covered in the futures market, the borrower would have to pay an additional amount of up to 470 basis points if it hedged the entire amount.

After insurance companies were observed backing away due to a regulatory technicality connected to the proposed merger, HDFC Ltd bond yields have begun to inch higher. They were customary buyers of HDFC bonds, which are thought to have excellent credit quality.