Mortgage lender Housing Development Finance Corp Ltd will raise Rs 13,000 crore ($2.03 billion) to maintain its stake in its banking arm besides investing in other subsidiaries focussed on general insurance, education loans and services, and affordable housing, among others.
HDFC will raise funds either solely or through a combination of share sale, compulsorily convertible debentures and warrants, the firm informed stock exchanges following its board meeting on Tuesday.
India’s largest housing-sector financier will infuse Rs 8,500 crore ($1.32 billion) into HDFC Bank via the preferential route to maintain its holding at 21.01%, factoring shares and warrants issued. HDFC Bank has nearly 473 million warrants which can be converted into an equal number of shares.
HDFC Bank board is scheduled to meet on Wednesday and will announce a separate fundraising plan. While the bank is looking to sell fresh shares to institutional investors and to counter the promoter stake dilution, HDFC is looking to invest the sum in HDFC Bank.
“HDFC Bank proposes to raise further capital to fund its growth. In order for the corporation to more or less maintain its current shareholding in HDFC Bank, it will need to participate in HDFC Bank’s preferential offer up to an amount not exceeding Rs 8,500 crore,” according to the stock exchange filing.
HDFC is classified as a foreign entity under the Reserve Bank of India (RBI) rules which cap foreign holding in India private banks at 74%.
The fundraising by HDFC is part of its strategy to unlock value in certain business and invest in high growth areas including new acquisitions. The firm recently raised Rs 5,546 crore by selling HDFC Standard Life Insurance shares to public, valuing the firm at Rs 58,260 crore ($8.96 billion) last month.
HDFC had mobilised Rs 10,400 crore in October 2015 by issuing low-cost non-convertible debentures (NCDs) as well as warrants.
The corporation is now exploring opportunities in the health insurance sector via HDFC ERGO General Insurance Co, besides evaluating buyout opportunities and resolution of stressed assets in the real estate sector.
HDFC said it has also set up funds to invest in equity and mezzanine debt of affordable housing projects. “The corporation has committed sponsor support to these funds,” HDFC said.
Besides HDFC ERGO, the company is looking to infuse capital in its education loan subsidiary HDFC Education and Development Services Pvt. Ltd and HDFC Credila Financial Services Pvt. Ltd.
In 2009, HDFC first acquired a 41% in Credila Financial Services Pvt. Ltd, a lender of education loans, from DSP Merrill Lynch Capital Ltd. The stake buy valued the firm at $5 million. A year later, HDFC raised its stake to 51% which has further increased over the years.
HDFC’s total stake in Credila stood at 81.12% as on 31cMarch 2017. Factoring for the conversion of compulsorily convertible preference shares (CCPS), total diluted shareholding of HDFC stood at 90.09% at the end of financial year 2016-17.
Shares of HDFC closed at Rs 1,709.70 on the BSE on Tuesday, down 0.49% from the previous close.
Shares of HDFC Bank closed at Rs 1,885.15, up 0.4% from the previous close.
The BSE’s benchmark Sensex closed 0.7% higher at 33836.74, scaling new peaks.