DHFL to raise Rs 4,000 crore from bonds linked to inflation

MUMBAI: Dewan Housing Finance may succeed where the government has failed — selling inflation-linked bonds to investors. The mortgage lender is set to raise Rs 4,000 crore through a retail bond sale, which for the first time will also offer interest rates linked to consumer price-based inflation.

"We are selling the country’s largest public issue in the housing finance sector," Kapil Wadhawan, CMD of DHFL, told ET, confirming the matter.

"We will use the proceeds of onward lending, financing and general purposes," he said.

Investors can earn interest income in the range of 8.90-9.50 per cent irrespective of any wild swings in CPI (consumer price index) data as the issuer has put both upper and lower caps, mitigating the risk factors. Bonds will mature in three years.

The core issue size is at Rs 1,000 crore while the company will retail oversubscriptions up to Rs 3,000 crore, totalling Rs 4,000 crore. The bond sale will open for subscription on August 3 and is scheduled to close on August 16. As the allotment is on a firstcome-first-serve basis, the company can close the issue early if it receives full subscription.

The company will offer a spread of 418 basis points over and above one year average of CPI inflation. This will help investors to fetch an interest rate as much as 9.20 per cent for the next one year. But it will change next year with the change in consumer inflation gauge, subject to the above mentioned caps.

Besides, investors can invest in fixed rate bonds as well, and earn in the range of 9.10-9.30 per cent with three-five-ten year maturities.

Rating companies Care and Brickworks have rated those bonds as triple-A, the highest grade.

"DHFL has designed this series of CPI-linked inflation bonds with investor-friendly tweaks, which will hedge investors from inflation and the company will also gain an advantage," said Ajay Manglunia, executive vice-president at Edelweiss Financial Services. "Amid falling interest rates, these AAA-rated securities offer much better option to debt investors in different tenors and interest options."

"The secondary market may offer potential capital gains to individual investors, (as they get extra coupon then QIB and Corporate) once they are listed," he said.

Edelweiss Financial Services, SBI Capital Markets, ICICI Bank, Trust Investment are some investment bankers to the bond sale.

A few years ago, the government coined the idea of inflation-linked bonds for both WPI and CPI-linked, which could elicit investor interest as expected. During the April-June quarter, the company sanctioned home loans worth Rs 88,006.8 crore against Rs 78,579.8 crore a year ago, an increase of 12 per cent year-on-year.