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HDFC AMC’s proposal to go public hits snag as SEBI examines ’past violations’
Photo Credit: Reuters

HDFC Asset Management Co. Ltd, India’s second-largest mutual fund company by assets, is facing regulatory hurdles for its proposed initial public offering (IPO), with the Securities and Exchange Board of India (SEBI) keeping the proposal in abeyance as it looks into alleged past violations.

In its weekly updates, SEBI said it has “kept (the proposal for IPO) in abeyance for examination of past violations” without disclosing details.

HDFC AMC, which is a joint venture of Housing Development Finance Corporation (HDFC) and British asset manager Standard Life Investments, had filed its draft proposal with the regulator on 15 March.

In November last year, HDFC, the country’s largest mortgage lender, had said it would cut 4% stake in the mutual fund arm, or 8.59 million shares, through the IPO.

The IPO size is estimated at Rs 2,400-2,500 crore, two people familiar with the matter had told VCCircle.

The public issue consists entirely of a sale of 25.45 million shares by HDFC and its foreign joint-venture partner Standard Life Investments.

As of September last year, HDFC owned 57.36% stake in HDFC AMC, Standard Life Investments held 38.24% stake, and key company officials owned the rest.

Last November, the mortgage lender had said it would divest a part of its stake in the unit through the proposed public float but would retain a minimum of 50.01% stake in the company and that joint venture partner Standard Life would hold at least 24.99%.

Standard Life would sell 16.86 million shares through the public issue.

The IPO would result in a total stake dilution of 12.08%.

If the proposal goes through, HDFC AMC will be India’s second mutual fund company to go public after Reliance Nippon Life Asset Management Ltd floated its IPO in October last year. The Rs 1,542-crore ($238 million) share sale of India’s third-largest mutual fund company was subscribed 81 times.

HDFC AMC aims to raise as much as Rs 2,500 crore through the proposed IPO. The company had Rs 2.9 lakh crore worth of assets under management at the end of December 2017, right behind ICICI Prudential Asset Management Co. Ltd with Rs 2.93 lakh crore, according to Association of Mutual Funds of India.

HDFC AMC’s plan to go public follows a growing trend where banks and financial services are looking to unlock value in group businesses after the rapid rise in stock markets in 2017.

Private-sector lender ICICI Bank offloaded its stakes in units ICICI Prudential Life Insurance Co Ltd and ICICI Lombard General Insurance Co Ltd in 2016 and 2017, respectively. It is now preparing to list its stock brokerage unit ICICI Securities.

HDFC AMC will be the fourth firm under the Deepak Parekh-led HDFC group to go public.

Mortgage lender HDFC got listed in 1978, a year after it began operations, according to its website. HDFC Bank went public in March 1995 with a Rs 50 crore IPO that was subscribed 55 times. Its shares listed at Rs 40 apiece, four times the issue price.

HDFC Standard Life Insurance Co. floated its IPO in November last year. The Rs 8,695-crore IPO was subscribed a little more than five times and the insurer gained on its trading debut.

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