HDFC Bank Ltd. secured its tightest-ever spread on a dollar bond issue, pricing the $750 million five-year bond at 90 basis points over comparable US Treasuries, according to a person familiar with the matter who asked not to be identified. The pricing was 30 basis points tighter than the initial guidance of 120 basis points over Treasuries, demonstrating exceptionally strong investor demand for India's largest private lender. This represents the tightest spread achieved by HDFC Bank on any dollar bond issuance, marking a significant milestone in the bank's overseas funding strategy. The deal capitalizes on the Reserve Bank of India's subsidised hedging facility for overseas borrowings, with the all-in landed cost of funds for the bank estimated at around 7% considering the hedging discount.
HDFC Bank issued the $750 million five-year senior unsecured bonds through its International Financial Services Centre (IFSC) Banking Unit at GIFT City, as disclosed in an exchange filing on Tuesday. The dollar-denominated notes carry a fixed coupon of 5.067% and will mature on June 24, 2031, with the bonds expected to be rated Baa3 by Moody's Ratings and BBB by S&P Global Ratings. The notes are unsecured and rank pari passu with HDFC Bank's other senior unsecured obligations, with principal to be redeemed at maturity. The bonds will be listed on India International Exchange (India INX) and NSE International Exchange at GIFT City, positioning this as one of the larger offshore fundraisings by an Indian bank this year.
The successful bond issue comes after the Reserve Bank of India announced earlier this month that external commercial borrowings with an average maturity of at least three years by state-run companies and banks would qualify for a swap facility at a fixed rate of 1.5% per annum, compounded semi-annually. This facility lowers hedging costs and helps cushion a fall in the rupee. Market participants estimate hedging costs in the market at 3.5-4%, implying a saving of 200-250 basis points under the RBI's swap arrangement. Analysts have said funds raised through the OFCB route could be 40-50 basis points cheaper than domestic deposits of comparable maturity, helping lenders meet credit demand at a lower cost. The window will remain open until December 31, forming part of a wider RBI push to draw in dollar inflows and bolster the rupee, with other banks also planning similar overseas debt sales, including SBI and Bank of Baroda.
Strong investor demand was evident in the book-building process, with the final pricing at 90 basis points over U.S. Treasuries reflecting robust market appetite for the subsidised hedging facility. The successful execution of this $750 million dollar bond issue positions HDFC Bank as the largest lender to tap the RBI's subsidised window since 2023. The new offering was the Mumbai-based lender's first since February 2024, when it raised $750 million via three- and five-year notes at a spread of 95 basis points and 108 basis points, respectively. The robust demand for HDFC Bank's debt suggests investors are looking beyond the developments that brought the lender under governance spotlight. In March, its part-time chairman resigned abruptly, citing ethical differences, while a subsequent media report alleged that the bank had breached industry norms by offering higher interest rates to a state-owned company. HDFC Bank denied any wrongdoing and appointed veteran banker Keki Mistry as interim chairman for three months, with the Reserve Bank of India also publicly supporting the lender.
