HDFC to pare stake for foreign investment in bank

 

MUMBAI: Parent HDFC will pare its stake in HDFC Bank to create room for foreign investors. HDFC, the country's oldest mortgage lender which owns 22.5 per cent in HDFC Bank, will not step in as a buyer when the bank issues shares to local and foreign investors to raise Rs 10,000 crore, said three people aware of the decision.

The institution will let its stake dip to a little over 20 per cent in HDFC Bank where `foreign ownership', as defined by the government, is close to the maximum permissible 74 per cent. "HDFC will not participate in the share purchase but will, in fact, sell shares to make way for other foreign investors,'' said one of the persons. In the past whenever there has been a share dilution in HDFC Bank, HDFC had always purchased shares to preserve its holding in India's most valuable lender.

HDFC Bank shareholders have approved a proposal to raise Rs 10,000 crore capital by July 2015. The bank has appointed investment banks Bank of America Merrill Lynch, Credit Suisse, HSBC, JP Morgan, Morgan Stanley and Citi Group as advisors to the proposed fund raising. HDFC's decision is driven by the government's stand that the institution's holding in HDFC Bank should be treated as foreign ownership because more than 51 per cent of HDFC's stake is with offshore investors.

 COMMENT: HDFC Bank's proposed fund raising would be a combination of ADRs and local share issuance to mutual funds and insurance companies. Since the headroom available is slim, a local share sale without parent's participation will allow space for foreign investors

Anand kumar maurya

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