HDFC Asset Management Company Ltd, the mutual fund arm of mortgage lender Housing Development Finance Corp, filed for an initial public offering (IPO) of 25.5 million shares on Wednesday.
The IPO size is estimated at Rs 2,400-2,500 crore (around $384 million), two people familiar with the matter told VCCircle.
The public issue consists entirely of a secondary sale of shares by parent entity HDFC and its foreign joint venture partner Standard Life Investments Ltd.
HDFC owned a 57.36% stake in HDFC AMC, India’s second-largest mutual fund company, as of September last year. UK’s Standard Life Investments Ltd holds 38.24% stake while the remaining stake is held by key company officials.
The mortgage lender had started the IPO process in November last year when it said it would pare 4% stake, or 8.59 million shares, in the IPO.
Standard Life will sell 16.86 million shares in the public issue.
The IPO will result in a total stake dilution of 12.08% on a post-issue basis.
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%.
HDFC AMC will be the second Indian mutual fund company to go public; third-ranked Reliance Nippon Life Asset Management Ltd floated its Rs 1,542 crore IPO in October last year.
VCCircle had reported last month that HDFC AMC had selected merchant bankers as it prepared to go public.
The plan to go public reflects 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, besides shoring up their capital requirements for expansion.
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 seeking a $2.6 billion valuation through the IPO of ICICI Securities Ltd next week as it prepares to list its stock brokerage unit.
HDFC AMC will also 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.
Here’s a snapshot of the proposed IPO by HDFC AMC:
The issue is entirely a secondary market sale. The IPO size is estimated at Rs 2,400-2,500 crore (around $384 million) and may value the firm upwards of Rs 20,500 crore ($3.18 billion).
The mortgage lender will pare 4% stake, or 8.59 million shares, in the IPO. Standard Life will sell 16.86 million shares.
HDFC AMC’s IPO will result in a total stake dilution of 12.08% on a post-issue basis.
Use of Proceeds
The company will not receive any proceeds from the offer.
The AMC has appointed a dozen bankers to manage the share sale. Kotak Mahindra Capital Co, Axis Capital, Bank of America Merrill Lynch, Citigroup Global Markets (India), CLSA India form the syndicate, besides firms like HDFC Bank, ICICI Securities, IIFL Holdings, JM Financial, JP Morgan India, Morgan Stanley India, and Nomura Financial Advisory and Securities India.
AZB & Partners is the legal counsel representing the company, while Wadia Ghandy & Co is representing HDFC.
Cyril Amarchand Mangaldas is the legal counsel to Standard Life.
Khaitan & Co and Latham & Watkins LLP are India and international legal counsel backing merchant bankers on the IPO.
HDFC AMC was incorporated in December 1999. It is now the second largest mutual fund company with assets under management (AUM) just shy of Rs 3 lakh crore as of February this year.
HDFC AMC offers a variety of savings and investment products across asset classes.
The company had 7.61 million active client accounts as of December 2017. It offered 127 investment schemes across asset classes comprising 28 equity-oriented schemes, 91 debt schemes, three liquid schemes, and five other schemes (including exchange-traded schemes and funds of fund schemes).
Equity-oriented schemes account for 53.0% of its total assets under management (AUM) of 2.93 lakh crore as of December this year compared with the industry average of 44.1%.
“As equity-oriented schemes generally have a higher fee structure compared to non-equity-oriented schemes, our product mix helps us achieve higher profits,” the company said based on findings by research and credit rating agency CRISIL.
HDFC AMC also provides portfolio management and segregated account services, including discretionary, non-discretionary and advisory services, to high net-worth individuals (HNIs), family offices, domestic corporates, trusts, provident funds and domestic and global institutions.
The company claims to be the most profitable AMC since the financial year 2012-2013.
It reported net profit of Rs 495.55 crore for nine months ended December 2017 on revenue (from operations) of Rs 1209.97 crore for the same duration.
The company’s net profit for 2016-17 stood at Rs 550.24 crore on revenue of Rs 1,480.03 crore, while its 2015-16 net profit was Rs 477.88 crore on revenue of Rs 1442.54 crore.
HDFC AMC’s net profit has risen at a compounded annual rate (CAGR) of 11.54% in the previous five years beginning fiscal 2013. Revenue has risen at a CAGR of 15.64%.
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