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MUMBAI – Housing Development Finance Corp (HDFC), the mortgage-lending pioneer that funds three of every ten financed homes in India, plans to raise up to Rs 12,000 crore in this fiscal’s largest local bond sale that will be the first such initiative by the financier since the early-April announcement of its proposed merger with HDFC Bank.

The home financier is in talks with

of India, SBI Pension funds and LIC Pension funds that are expected to buy into these bonds, debt market sources familiar with the matter told ET. will likely use the proceeds to expand its loan book amid robust demand for new homes.

“Home loan demand is gaining despite all odds, and HDFC needs to raise money before it becomes costlier,” one of the persons cited above told ET. “The lender wants to minimize its funding costs by raising these long-term bonds before the central bank goes in for another round of rate increases.”

HDFC and LIC of India did not respond to ET’s queries. Other potential investors could not be contacted immediately for comments.

The base size of the issue is pegged at Rs 500 crore with an option to retain oversubscriptions up to Rs 11,500 crore. With 10-year maturities, these secured debt papers are likely to offer about 7.86% and be up for bidding on Tuesday.

HDFC has likely obtained commitments for at least Rs 5,000 crore of debt from LIC of India, which may buy bonds worth up to Rs 8,000 crore. Other pension funds may also buy bonds worth a few thousands of crores of rupees.

Investors of the bonds will eventually own HDFC Bank bonds after the proposed merger between the two entities takes effect in the next 17 months.

Regulatory adjustments may allow HDFC Ltd bonds to be treated as infrastructure bonds in the books of the merged entity, although the decision is not final yet.

HDFC Bank’s infrastructure bond series maturing in 2028 are yielding in the range of 7.60-7.65%.

“When you compare the HDFC new bond rate and existing bank bond infra rate, you might find the latest sale priced on par with state government bonds,” said a debt market veteran managing nearly Rs 1 lakh crore.

In the second week of March, HDFC raised Rs 10,000 crore offering 7.18%, about 28 basis points higher than the benchmark yield then. The differential may widen to about 40 basis points in this week’s bond sale.

“In the past two and a half months, general investor risk perception has changed amid a flurry of macro and microeconomic developments,” said Ajay Manglunia, managing director and head of debt capital markets,

. “A formal merger with HDFC Bank will not change the group’s credit ratings.

However, investors are awaiting more clarity on select accounting treatments.”

Both the entities are triple-A rated.

On April 4, the home financier announced that it will merge with

. Long-term bond investors, including insurance and pension funds, have already sought regulatory direction as the merger is likely to hit sectoral caps on bond investments, ET reported on April 5.

Total outstanding bonds/non-convertible debentures of HDFC Ltd and HDFC Bank stand at nearly Rs 2.12 lakh crore, show data from Prime Database, an analytics firm. The largest mortgage lender has sold bonds worth Rs 1,74,356 crore, with the bank raising Rs 37,452 crore.

HDFC Ltd bond deals in the recent past:


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