Why did Indiabulls Housing not redeem its rupee denominated perpetual bonds?

Indiabulls Housing Finance decided not to redeem its rupee-denominated perpetual bonds due to a sharp spike in refinancing costs. In June 2012, Indiabulls Housing had issued hybrid notes with an option to call back the 10.6% note at the end of 10 years. This is rare but more companies may follow suit amid rising refinancing costs. However, this may dampen the appetite among investors for perpetual debt. The general norm is that the option to call is normally exercised by the issuer, giving some assurance of redemption.

Extending the maturity risk has become common practice in the last few months as mid-sized companies find it tough to replace older hybrid bonds at competitive costs. Due to the hawkishness of the RBI and the Fed, the current yields for refinancing are just too high. The spike in costs is much sharper for the non-banking financial companies. For instance, if you look at the blue chip rupee corporate bonds, the 3 year yields are up nearly 148 bps to 7.46% as per the data compiled from the market by Bloomberg.

Indiabulls lenders may have more reasons to be disappointed. Normally, the practice is to hike the coupon rate on such debt securities by at least 100 basis points if the issuer does not exercise the call option. However, in the case of Indiabulls Housing Finance perpetual bonds, there will be no change in the coupon rate.