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HDFC Bank raises $1 billion


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HDFC Bank, the largest lender in India by market value, recently doubled its overseas borrowing through a term loan syndication. The bank exercised a green shoe option to raise an additional $500 million, bringing the total proceeds to $1 billion. This marks the largest three-year overseas loan organized by an Indian bank for general corporate purposes.

The syndication involved a group of 23 global banks from Asia, the Middle East, and Europe. The strong demand from foreign banks led HDFC Bank to exercise the full green shoe option.

The loan was priced at 110 basis points above the three-month Secured Overnight Financing Rate (SOFR), resulting in an interest rate of approximately 6.45% for the three-year loan.

MUFG Bank, Japan’s largest lender, initially provided HDFC Bank with a loan of $500 million in December. During the syndication stage, MUFG Bank retained $150 million, while the remaining amount was sold to other lenders from countries such as Taiwan, Japan, and Saudi Arabia.

Purpose of the Loan and Impact on HDFC Bank

HDFC Bank raised the funds to strengthen its liabilities after merging with its parent company, HDFC, last year. The merger required HDFC Bank to increase its liabilities and funding to align with the maturity profile of its parent company.

The bank’s loan-to-deposit ratio (LDR) is currently near a two-decade high of 80%, mainly due to the merger. However, HDFC Bank expects the ratio to progressively trend down over time.

To improve its net interest margins, HDFC Bank needs to expand its deposits at a faster rate than its loans. This will involve focusing on improving the retail mix and high-yielding loans while reducing low-yielding corporate loans.

Participating Banks in the Syndication

While the names of all the banks that participated in the syndication have not been disclosed, some of the banks involved include Taipei Fubon and Bank of Taiwan from Taiwan, Saudi National Bank, Bank of China, and CIMB Bank from Malaysia.

Outlook for HDFC Bank

Despite near-term headwinds related to the integration of teams and IT systems, as well as slower deposit and priority sector loan growth, HDFC Bank is expected to deliver 16-17% earnings growth in the next three years. This is attributed to factors such as its strong retail asset portfolio, improving deposit franchise, synergies from the merger with HDFC, and branch expansion.

In conclusion, HDFC Bank has successfully raised $1 billion through a term loan syndication, exercising a green shoe option. The funds will be used to strengthen the bank’s liabilities after merging with its parent company, HDFC. The syndication involved a group of global banks, and the loan was priced at an interest rate of approximately 6.45%. HDFC Bank aims to improve its net interest margins by focusing on retail loans and high-yielding assets. Despite near-term challenges, the bank is expected to deliver strong earnings growth in the coming years.

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