HDFC Bank gets nod to raise up to Rs 15.5k cr via QIP

HDFC Bank, India’s most valued lender, has received government approval to sell fresh shares in India and abroad in what could result in the country’s largest qualified institutional placement (QIP).

The approval includes an Rs 8,500-crore infusion from parent Housing Development Finance Corp (HDFC), which will allow it to maintain its 25.6% current shareholding, potentially leaving about Rs 15,500 crore to be raised from the market. The QIP record is Rs 15,000 crore raised by State Bank of India (SBI) in June 2017.

“This sale could happen as early as next week,” said a person involved in the issue. “The government approval was the most difficult to get and now that it is in hand the only thing that remains is a nod from the National Housing Bank (NHB), HDFC’s regulator, which can come in the next couple of days. Bankers will then waste no time in hitting the market.”

Cabinet approved the proposal on Wednesday, subject to overseas ownership limits.

This will allow “HDFC Bank to raise additional share capital of up to a maximum of Rs 24,000 crore, including premium, over and above the previous approved limit of Rs 10,000 crore, such that the composite foreign shareholding in the bank shall not exceed 74% of the enhanced paid-up equity share capital of the bank,” the government said. “The proposed investment is expected to strengthen the capital adequacy ratio of the bank.”

Foreign banks including Bank of America-Merrill Lynch, Credit Suisse, JPMorgan Chase, UBS Securities, Morgan Stanley, Goldman Sachs and Nomura Holdings are vying for the issue.

Bank’s First Share Sale in 3 Yrs
Domestic investment banks such as JM Financial, Kotak Mahindra and Motilal Oswal could also be part of the issue.

“It is expected that HDFC Bank will issue preferential shares to HDFC and simultaneously issue shares to institutional investors through a QIP,” said the person cited above.

The capital raising will enhance the bank’s capital adequacy ratio from 14.8% in March 2018 and likely last the bank for the next three years.

HDFC Bank ended at Rs 2,035, down 0.46%, on the BSE Wednesday. The Sensex ended 0.46% higher.

This share sale will be the first since HDFC Bank raised Rs 10,000 crore through a combination of QIP and American Depository Receipts (ADRs) in February 2015.

“Unlike last time, this time there is unlikely to be an ADR because regulations for ADRs are undergoing a change,” the person said. “HDFC Bank has to ensure that the sale of shares does not result in a breach of its 74% foreign investor limit.

The QIP will also be closely watched after last week overseas investors surprised the market by keeping their purchase of shares in the bank to the minimum after a Rs 9,400 crore window opened up due to employee stock options vesting and diluting equity in the bank, giving foreign investors room to buy some more shares.