(Bloomberg) -- Indiabulls Housing Finance Ltd., one of India’s leading mortgage lenders, decided not to redeem its rupee-denominated perpetual bonds as refinancing costs rise at the fastest pace in at least two decades.

The financier had issued the so-called hybrid notes, with characteristics of debt and equity, in June 2012 with an option to redeem them 10 years later. But, the company chose not to call the 10.6% notes back on June 28 and instead paid interest on these securities a day prior.

“The implied cost of equity for non-bank lenders has increased in the last year owing to rising interest rates and capital outflows,” a spokesperson for the company said. “These perps are attractively priced for investors, and the company’s cost will be higher currently if it were to replace this with equity.”

The redeeming option for Indiabulls Housing’s papers came at a time when extending maturity risk has become a hot topic in credit markets globally, with companies unable to rely on low market yields to replace older hybrid bonds. Financing costs have surged locally too as the Reserve Bank of India joins other central banks worldwide in raising key interest rates.

The average yield on top-rated rupee corporate bonds due in three years has climbed 149 basis points  to 7.47% so far this quarter, according to data compiled by Bloomberg. That makes it the biggest surge in costs for a three-month period according to data going back to March 2002.

The decision to not exercise a call option could dampen investors’ appetite for perpetual debt. Any delay would inherently make the bonds less valuable because holders would have to wait longer to get the principal repaid. Investors around the world generally expect issuers to exercise the option, and there’s been a shock in cases when they hadn’t, as with Spanish lender Banco Santander SA in 2019.

Usually, the coupon rate on such debt securities is increased by at least 100 basis points if the issuer doesn’t exercise the call option. But there will be no change in the case of Indiabulls Housing’s issuance as the bond does not have this covenant. The spokesperson said that the company would consider redeeming at an opportune time as it is now focused on capitalizing strong demand for mortgages.

©2022 Bloomberg L.P.