- HDFC is one of India’s leading borrowers in the rupee bond market
- Other mortgage lenders may have access to a larger pool of funds
The biggest merger in India’s history is likely to take one of its major issuers away from the rupee bond market, an absence that may weigh on debt sales and deal fees for banks.
The consolidation of Housing Development Finance Corp. and HDFC Bank Ltd. will create a financial services giant of more than $200 billion, and the parent will be able to tap into the bank’s deposits to grow, rather than accumulate more debt. That’s not all bad for India’s bond world, as the hole created by the shadow lender may allow new borrowers to sell notes, helping India deepen its debt market.
The shadow lender is India’s biggest bond seller in 2022, and its issuance accounted for 7.7% of the country’s total issuance volume this year, more than an average of about 6% over the past 10 years, data compiled by Bloomberg show. The merged entity will be a bank and is likely to offer notes when needed to increase its capital buffers and finance infrastructure projects.
“HDFC’s exit will initially affect overall sales volume next year,” said Jayen Shah, founder of Mavuca Capital Advisors Pvt., a fintech investment banking firm. “I expect many first-time issuers, state-owned and private companies to turn to the bond market next year as yields stabilize, which may gradually fill the gap.”
The merger, which is expected to conclude in the second quarter of 2023, will give HDFC access to 16.7 trillion rupees ($202 billion) of funds comprising the bank’s so-called low-cost checking and savings account deposits and term deposits. That will allow it to continue expanding its assets, which stood at Rs 6.9 trillion at the end of September.
The exit of a debt issuer of that size risks hurting the commission income of the bankers who have arranged HDFC’s various offerings. In recent years, Axis Bank Ltd. and ICICI Bank Ltd. have overseen most of those sales, data compiled by Bloomberg show.
For HDFC’s competitors, however, the company’s exit can be positive in terms of fundraising. “HDFC’s exit from the bond market would benefit its peers as it will give them access to a larger pool of credit,” Shah de Mavuca said. “That, in turn, will reduce the financing costs of other, higher-rated housing finance companies.”
Source: Bloomberg
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