HDFC to raise up to ₹8,000 crore

MUMBAI: Housing Development Finance Corp. Ltd (HDFC) plans to raise as much as ₹8,000 crore to bolster its capital buffers and prepare for future uncertainties amid widespread economic disruptions from the covid-19 outbreak, said four people familiar with the development.

India’s top mortgage lender has begun talks with investment banks to decide whether to raise the capital through a sale of shares to qualified institutional investors, sale of warrants or a rights issue, the people said on condition of anonymity.

“It’s better to be overcapitalised in these difficult times. Profits are not going to come fast and accretion to net worth will be slow,” said a person close to HDFC, one of the four cited above.

The capital-raising plan is in the early stages and the lender’s board will likely take a final decision after its subsidiaries declare their quarterly earnings, the person said.

“The plan is to raise ₹5,0008,000 crore, through a dual-tranche of QIP, warrant issuance and a rights issue subsequently. The money will be used mainly to prepare the housing finance company to deal with higher provisioning costs and also to expand inorganically since many businesses within the lending industry may be getting ready to sell majority stakes at cheap valuations in the wake of the crisis and the prolonged lockdown,” said a second person cited above, who declined to be named.

A HDFC spokesman, however, denied the lender was looking to raise capital.

A stress test done by the group’s banking subsidiary, HDFC Bank Ltd, recently found that the crisis may cause a spurt in bad assets for lenders. Mutual funds currently own 9.52% of HDFC; foreign portfolio investors own 70.88% and insurance companies hold 8.06% of the lender.

At the prevailing average market price of ₹1,727 per share, a ₹8,000-crore equity issuance translates into an around 2.7% stake in the mortgage lender. n