Indian bank tucks into Masala
Bonds HDFC Bank finds strong offshore demand for longer durationBY KRISHNA MERCHANTHDFC BANK has become the first
Indian bank to sell Masala
bonds, paving the way for other
lenders to tap the offshore
rupee bond market.
India’s second-largest private-
sector lender raised Rs23bn
(US$353m) at a seven-year
maturity, the minimum tenor
under rules allowing banks to
sell offshore rupee bonds for
infrastructure and affordable
housing. It was also the first
Indian issuer to sell Masala
bonds at that tenor.
The deal priced at a yield of
8.1%, on par with the bank’s
onshore funding costs.
“HDFC Bank’s Masala will
set a precedent for other
lenders to raise senior offshore
rupee bonds in the future,”said Ajay Marwaha, director of
investments and investment
advisory at Sun Global
Investments, who expects the
notes to trade actively in the
secondary market.
The deal demonstrated that
there is a large pool of liquidity
offshore just as funds are
becoming more scarce in the
domestic market.
“For us, it is always
advantageous to have a larger
set of investors, hence we
went offshore,” said Ashish
Parthasarthy, treasurer at HDFC
Bank. “The objective was to
look at a different investor base
through the Masala route.”
There is tepid demand for
longer-maturity bonds in
the domestic market at the
moment, as mutual funds are
seeing slower flows into longer-duration funds due to the
hawkish interest rate outlook.
“The domestic market is
quite dysfunctional at the
moment because it has a
limited appetite for longer
tenor,” said a DCM banker.CREDIT VIEW
Parthasarthy said the Baa2/
BBB– (Moody’s/S&P) rating
also helped drive demand,
as few Masala issues have
international ratings.
The trade drew orders of
over Rs28bn from more than 40
accounts. In terms of investor
types, 82% were fund managers,
15% were banks and 3% were
private banks.
Some investors described
the bonds as an attractive carry
product.
“We are taking both acurrency and credit view in
HDFC Bank,” said Jenny Zeng,
portfolio manager and head
of credit research for Asia at
AllianceBernstein.
The cost for the issuer was
the same as onshore rates after
absorbing the 5% withholding
tax.
“If we were to issue bonds
in the domestic market, the
levels would be similar to the
rate that we have been able
to access through the Masala
route,” said Parthasarthy.
Although HDFC Bank has not
issued any seven-year senior
bonds recently, the lender’s
rupee bonds maturing in March
2025 were trading at 8.32%,
according to Thomson Reuters
data.FPI SELLING
While Masala bonds appeal
to foreign portfolio investors
who do not have access to
the onshore market, some
investors who already haveUS buyers lap up latest China IPOs
Equities Streaming websites entice investors despite recent disappointmentsBY FIONA LAUThe US IPOs of Chinese video-
streaming companies IQIYI and
BILIBILI have drawn a strong
response from investors keen to
bet on the rapid growth of the
country’s online entertainment
industry.
The up-to-US$2.38bn Nasdaq
IPO of iQiyi was covered on
the first day of bookbuilding
last Monday and is on course
to become the biggest Chinese
listing in the US since Alibaba’s
US$25bn float in September- At the top end of the
range, the unit of search engine
Baidu could raise 59% more
than the US$1.5bn it originally
filed for.
Bilibili’s NYSE IPO of up to
US$525m has also drawn strong
support with books quickly
covered after bookbuilding
started last Monday.
The upbeat demand shows
US investors’ interest in
Chinese IPOs remains strong,
despite several disappointing
listings late last year.
“US investors are stillinterested in Chinese IPOs in
high-growth sectors. They are
just avoiding those that are
more vulnerable to regulatory
risks,” said a source close to the
iQiyi float.
Shares of Chinese peer-to-peer online lender Ppdai Group,
for instance, closed at US$8.
last Wednesday, 37% below the
November IPO price of US$13.
Soon after the company’s
listing, China introducedrules to clamp down on the
micro-loan market, triggering
a sell-off in US-listed Chinese
consumer finance firms.NOT YET PROFITABLE
iQiyi and Bilibili are not yetprofitable, but investors see the
two floats as opportunities to
buy into the robust growth of
China’s online entertainment
sector. This is especially true for
iQiyi, which is often seen as the
Chinese version of Netflix.
“People are seeing strong
growth in the sector. If you
believe such growth will
continue, buying in the IPOs
now can allow you to position
early,” said a person close to
one of the floats.
According to a report from
consulting firm iResearch,
the online entertainment
industry in China has more
than tripled in size from about
Rmb50.8bn (US$8.03bn) in
2012 to Rmb156.9bn in 2016,
and is expected to reach about
Rmb688.4bn in 2022. Of the
total time users spent on
online entertainment in China
in 2016, over 80% was onNews
“US investors are still interested in Chinese
IPOs in high-growth sectors. They are just
avoiding those that are more vulnerable to
regulatory risks.”