S&P TO RELOOK AT HDFC BONDS AFTER BAHRAIN DOWNGRADE

MUMBAI: Bonds worth $1.2 billion issued by a Bahrain branch of HDFC Bank, India’s secondlargest private lender, are likely to be rated by Standard & Poor’s (S&P), following a downgrade rating action by S&P on the sovereign credit ratings of the Kingdom of Bahrain.

On February 17, S&P had lowered the long and short-term foreign and local currency sovereign credit ratings to BB/B (stable) from BBB-/A3 (negative), implying a loss in investment grade for the Gulf country.

The bonds carried a dual rating from S&P of BBB- and Moody’s of Baa3. The issuer rating of HDFC Bank by S&P and Moody’s is BBB- and Baa3, respectively.

S&P’s move will likely impact the bonds issued by the Indian bank. “Consequent to the recent rating action on Bahrain, the bonds issued by HDFC Bank may also be subject to rating action by S&P. The bank is in the process of carrying out modifications to the structure of all issuances done from Bahrain in order to ensure that the bonds are insulated from any rating actions on the host country,” HDFC Bank said in a statement.

Ratings typically have an impact on the cost of financial instruments, with a lower rating leading to a higher cost of borrowing. Since S&P downgraded Bahrain’s sovereign credit rating, it will have a corresponding impact on similar debt instruments issued in the country.

HDFC Bank may l i kely explore options of making the bonds more attractive by raising the coupon — or the interest paid on the bonds. The other option that HDFC Bank may also look at, is buying back the bonds.