hdf financial services: HDFC Bank considers strategic investor in NBFC branch, sees $ 9 billion valuation


Months after abandoning its plan to list its non-bank subsidiary, HDB Financial Services, HDFC Bank has launched a formal process to recruit a strategic investor, people familiar with the matter said.

The country’s largest private lender has appointed Morgan Stanley to handle this and notices have already been given to global banks and domestic financial institutions. The lender expects a valuation of 60,000 to 67,500 crore ($ 8 to 9 billion), although the final outlines do not appear until firm offers are presented, one of the executives quoted above said. -above.

While the initial talks are supposed to be about a 20-25% stake, some potential suitors want a path of control or joint control.

The talks are preliminary in nature, but with leadership confident in improving asset quality in a post-pandemic economy, now is the right time to kick off a monetization exercise, experts said. Some observers from the HDFC group also see this as a precursor to a possible listing.

Loan book, Imprint

“While it is still not clear how much stake HDFC Bank will divest from, as the parent company of HDB Finance, it wants to make sure it finds out the correct value for its NBFC (non-bank finance company). ) online with other non-bank lending to peers, ”one informed person said.

As a policy, the bank does not comment on market speculation, the HDFC Bank spokesperson said. HDB Financial Services did not respond to questions.

In June 2019, Aditya Puri, then Managing Director and CEO of HDFC Bank, hinted at a possible listing. This saw the share almost doubling in the gray market to around 1150 coin for an estimated valuation of 80,000 crore. It has emerged from those highs amid growing concerns about asset quality, exacerbated during the pandemic, and currently hovers at 875 per share for a valuation of 70,000 crore, down from levels of 970 in March. Secondary market experts believe that in anticipation of a share sale, the buying activity on the shares has increased significantly.

In a recent analyst call after the June quarter results, HDFC Bank CFO Srinivasan Vaidyanathan said several international and domestic investors have expressed interest in the unit’s growth plans and added that the bank could test the market in terms of price discovery. At his recent annual general meeting in August, Managing Director Sashidhar Jagdishan said an outside investor could be called in for price discovery.

HDB Financial’s loan portfolio of 57,390 crore as of June 30 represented about 5% of the total HDFC bank advances of 11.47 crore lakh. The lender owns 95.3% of HDB Financial with employee trusts and a few current and former bank officials holding the remainder. ET reported in December 2019 that Puri’s family investment vehicles grossed 200 crore after partially liquidating its investments. Among the shadow banking cohort, its cost of funds is among the lowest. The franchise has a national presence with 1,319 branches in 959 cities. HDB has three main lines of business: loans to small and medium enterprises; financing of commercial vehicle and electronics assets; and short-term consumer loans.

Most banks have had NBFC subsidiaries to serve a larger customer base with offers that might otherwise be difficult to match a bank’s risk profile. But with the Reserve Bank of India continuing to push banks towards capital preservation, most bank-backed NBFCs such as PNB Housing Finance have had to seek outside investors for liquidity and growth support. In January, the RBI proposed a scale-up regulatory framework for shadow banks to separate large entities and expose them to a stricter set of “bank-like” rules. This is intended to protect financial stability while ensuring that small NBFCs continue to benefit from light regulation and grow easily.

“This is a genealogical franchise with strong parentage and a solid presence in the retail finance segment. Following the acquisition of Fullerton, several global franchises are keen to explore investment opportunities, ”said the director of a large financial institution familiar with the process, on condition of anonymity. “Final investment guidelines from the NBFC are also expected shortly, which will further clarify the regulatory air.”

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