HDFC Bank shares gained 1 per cent in morning trading on the NSE on Friday, August 21, putting the stock on course to extend its advance for a second straight session. The move came after India’s largest bank by market capitalisation announced that it had raised $1.75 billion through dual-tranche senior unsecured bonds issued via its GIFT City branch. The stock opened at Rs 728.30, compared with its previous close of Rs 725.05. It subsequently climbed to an intraday high of Rs 732.60, marking a gain of around 1 per cent during early trade.

This jump came as HDFC Bank made a record-breaking entry into the overseas debt market, raising $1.75 billion through a two-part dollar bond issue as it builds up foreign currency resources to support its foreign currency non-resident bank (FCNR(B)) deposits. India’s largest private sector lender raised $500 million through three-year bonds and another $1.25 billion through five-year securities on Thursday. Strong investor interest allowed the bank to price both tranches at significantly tighter spreads than initially indicated.

The transaction marks the largest debt capital market fundraise by an Indian financial institution, surpassing previous major overseas bond issuances by domestic lenders.

The scale of demand was evident in the order book, with bids from investors aggregating more than $7 billion. The strong response enabled HDFC Bank to substantially reduce the pricing spreads on both securities.

The three-year bonds were priced at 88 basis points over the comparable three-year US Treasury, well below the initial guidance of 120 basis points. Meanwhile, the five-year bonds were priced at 100 basis points above the corresponding US Treasury, compared with an initial guidance of 130 basis points.

With the US three-year Treasury yield around 4.28 per cent, the three-year HDFC Bank bond is expected to carry a pricing of approximately 5.16 per cent. The five-year US Treasury was trading around 4.39 per cent, putting the corresponding HDFC security at an estimated 5.39 per cent.

HDFC Bank Builds Dollar Funding For FCNR(B) Deposits

The latest transaction is HDFC Bank’s second dollar bond issue since the Reserve Bank of India introduced a special swap arrangement in June. Under the arrangement, hedging costs linked to FCNR(B) deposits raised by banks are fully covered by the central bank.

The move has encouraged Indian lenders to become more active in international debt markets as they seek to raise foreign currency funds.

HDFC Bank’s latest issue therefore comes against the backdrop of a broader push by Indian financial institutions to tap global investors for dollar-denominated funding.