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HDFC’s education finance arm bondholders fret over stake sale - sources
HDFC Credila Financial Services bondholders concerned about potential write-downs after ownership transfer
HDFC Credila Financial Services bondholders concerned about potential write-downs after ownership transfer
HDFC Credila Financial Services bondholders are worried about potential write-downs after the company’s ownership transfer from its AAA-rated parent company to a potentially lower-rated private equity firm, following a regulatory directive. The move has caused anxiety among its creditors and bondholders, who are reportedly seeking assurances from HDFC.
Key Takeaways:
1. HDFC Credila Financial Services bondholders are concerned about potential write-downs after the company’s ownership transfer from its AAA-rated parent company to a potentially lower-rated private equity firm.
2. The move follows a regulatory directive for HDFC to sell 90% of the company to comply with ownership stake regulations.
3. Bondholders are worried about the potential impact on the valuation of their holdings and are seeking assurances from HDFC.
4. The move has caused anxiety among creditors and bondholders, with some expressing concerns about the potential downgrade of the company’s bonds.
5. The company’s outstanding bonds are currently rated AAA by CRISIL and ICRA, but the rating is under watch with developing implications.
Synopsis:
The HDFC Credila Financial Services bondholders are concerned about potential write-downs after the company’s ownership transfer from its AAA-rated parent company to a potentially lower-rated private equity firm. This move has caused anxiety among its creditors and bondholders, who are reportedly seeking assurances from HDFC. The company is selling 90% of Credila to Baring EQT to comply with a regulatory directive, which has led to concerns among bondholders about the potential impact on the valuation of their holdings.
The move follows a similar situation with HDFC’s Affordable housing finance unit, Gruh Finance, which experienced a rating downgrade after its 2019 takeover by lower-rated Bandhan Bank. This history has heightened the anxiety among bondholders, as they fear a similar outcome for HDFC Credila’s bonds.
HDFC Credila currently has 43.25 billion rupees (nearly $523 million) worth of outstanding bonds, rated AAA by CRISIL and ICRA. However, the rating is under watch with developing implications, leading to concerns among bondholders about the potential downgrade of the company’s bonds. This has led to a slump in demand for HDFC Credila’s bonds in the secondary market, with some traders pricing in a single- or multiple-notch rating downgrade.
The top five HDFC Credila bondholders as of December 31, according to the company’s latest information memorandum, include 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. These bondholders are worried about the potential impact on their portfolios if the ratings fall and are reportedly looking to seek assurances from HDFC.
While investors have not formally approached HDFC, some of them have held back-channel conversations, indicating the level of concern among bondholders. HDFC is aware of these concerns and aims to have all stakeholders on the same page, but the company and HDFC Credila did not officially respond to a Reuters request for comment.
In summary, the potential ownership change and regulatory compliance have raised significant concerns among HDFC Credila’s bondholders, leading to a slump in demand for the company’s bonds in the secondary market. The bondholders are seeking assurances from HDFC, and the company is aware of their concerns and aims to address them. Any stake sale will require approval from HDFC Credila’s creditors and bondholders.
FAQ
Q1: Why are HDFC Credila Financial Services bondholders concerned?
A1: Bondholders are concerned about potential write-downs after the company’s ownership transfer from its AAA-rated parent company to a potentially lower-rated private equity firm, following a regulatory directive.
Q2: What is the regulatory directive that prompted the ownership transfer?
A2: HDFC is selling 90% of the company to Baring EQT to comply with a regulatory directive to reduce its stake in the education finance firm to 10% within two years of closing its merger with HDFC Bank.
Q3: What are bondholders seeking from HDFC?
A3: Bondholders are reportedly seeking assurances from HDFC regarding the potential impact on the valuation of their holdings and the company’s bond ratings.
