HDFC Bonds: IRDAI cautions insurers towards loading up on bonds of HDFC cos

India’s insurance coverage regulator has suggested insurers towards loading up on the bonds of HDFC Group firms, saying particulars on permitted publicity thresholds should await the efficient amalgamation date for what’s billed because the nation’s largest merger.

Early April, mortgage lender Housing Improvement Finance Corp (HDFC) proposed the merger with HDFC Financial institution. After the announcement, insurers wrote to their regulator Irdai on the permitted publicity limits within the particular person entities.

“Irdai shall be issuing essential directions on applicability of publicity norms solely after the announcement of the efficient date of the merger,” Irdai stated in its observe to the insurers. ET has seen a replica of that observe.

Some buyers had been seen shopping for bonds of the HDFC Group, anticipating regulatory clearance that would open up extra limits on the holdings in particular person firms. The regulator seems to have suggested insurers towards such a observe.

“Funding committees of insurance coverage firms are hereby suggested to be aware of the above (the reference to the efficient merger date) and take additional publicity to the above entities contemplating the proposed amalgamation with out pre-empting any regulatory relaxations for complying with extant laws relevant to publicity norms,” Irdai stated within the observe bearing the topic line “Merger of HDFC Ltd and HDFC Financial institution Ltd – Reg.”

Irdai didn’t reply to ET’s question on the matter.

A life insurer can spend money on HDFC Ltd bonds underneath the mixed class of “housing and infrastructure” that mandates an higher funding threshold of 15% of the belongings underneath administration. Common insurers have extra headroom.

Nevertheless, HDFC Financial institution falls underneath a distinct class. An insurance coverage firm has a cap of 30% in the case of investing within the banking and monetary companies sector. Irdai lately elevated the funding restrict for insurance coverage funding within the monetary sector to 30% from 25%.

Some insurers have reportedly been shopping for bonds of HDFC Ltd on the idea that the publicity to the mortgage lender could also be counted underneath the upper sectoral limits relevant to BFSI after the house financier is merged with the financial institution.

Insurance coverage firms with a bigger share of HDFC Ltd bonds earlier held inside conferences for a attainable realignment of portfolios.

“If long-term buyers like insurers shrink back from HDFC Ltd papers, it may weigh on bond yields except additional regulatory readability comes up,” stated an funding banker. “The narrowing differential between HDFC Ltd and Bajaj Finance yields may very well be an consequence of a mixture of things like demand-supply and demand urge for food,” the individual stated.

Each HDFC Ltd and Bajaj Finance, the nation’s main client financier, are triple-A rated. Though they don’t seem to be strictly comparable when it comes to secondary market liquidity and first bond gross sales, the common yield differentials throughout three-year, five-year and 10-year segments have compressed by about 10-15 foundation factors, sellers stated.

Complete excellent bonds/non-convertible debentures of HDFC Ltd and HDFC Financial institution stood at almost Rs 2.12 lakh crore originally of the monetary 12 months, confirmed information from Prime Database, an analytics agency. The most important mortgage lender has offered bonds value Rs 1,74,356 crore, with the financial institution elevating Rs 37,452 crore.