HDFC's education finance arm bondholders fret over stake sale –sources

Housing Development Finance

30/05/2023 06:39

By Bhakti Tambe
       MUMBAI, May 30 (Reuters) - Bondholders of India's HDFC
Credila Financial Services are worried that their holdings'
valuation may be written down if the firm's ownership moves from
its top-rated parent to a potentially lower-rated private equity
firm, at least five institutional bondholders told Reuters.
    AAA-rated Housing Development Finance Corp  HDFC.NS  (HDFC)
is set to sell 90% of Credila to Baring EQT, the Economic Times
reported, to comply with a regulatory directive to cut its stake
in the education finance firm to 10% within two years of closing
its merger with HDFC Bank  HDBK.NS .
    HDFC Credila currently has 43.25 billion rupees (nearly $523
million) worth of outstanding bonds, according to CRISIL. While
CRISIL and ICRA rate the bonds AAA, they have placed the rating
under watch with developing implications.
    "The main concern for us is we will not be able to hold
these bonds in our portfolios if the rating falls. In any case,
we would expect the company to pre-pay these bonds," said a
senior official at a large life insurance company.
    The official and other sources declined to be named as their
company policy does not permit them to talk to the media.
    Bondholders have precedence for their anxiety since
lower-rated Bandhan Bank Ltd  BANH.NS  2019 takeover of HDFC's
Affordable housing finance unit, Gruh Finance, resulted in a
rating downgrade.
    Demand for HDFC Credila's bonds has slumped in the secondary
market, with some traders pricing in a single- or multiple-notch
rating downgrade, said a bondholder.
    While investors have not formally approached HDFC, some of
them have held back-channel conversations, sources said.
    HDFC is cognizant of bondholders' concerns and aims to have
all stakeholders on the same page, a senior official at the
housing financier said. HDFC and HDFC Credila did not officially
respond to a Reuters request for comment.
    Life Insurance Corp of India, ICICI Prudential Corporate
Bond Fund, Aditya Birla Sun Life Mutual Fund, Larsen and Toubro
Officers and Supervisory Staff Provident Fund, and Tata AIG
General Insurance Co were the top five HDFC Credila bondholders
as of Dec. 31, according to the company's latest information
memorandum.
    Some market participants said that even if the ratings are
not downgraded after the ownership change, the yields will
continue to rise as the premium it used to get on parent HDFC's
backing will not be available.
    HDFC Credila's creditors and bondholders will need to
approve any stake sale.
 
 ($1 = 82.7416 Indian rupees)

 (Reporting by Bhakti Tambe; Editing by Savio D'Souza)
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