HDFC Bank to raise Rs 10,000 crore this week via QIPs and ADRs: Sources

HDFC Bank, India's largest private sector lender by market capitalisation, is set to raise Rs 10,000 crore sometime this week through a combination of qualified institutional placements (QIPs) in the domestic market and a follow-on offering of American Depository Receipts (ADRs) in the US, two people familiar with the proposal told ET.

A successful issue would create a record of sorts with Indian companies raising more than Rs 32,000 crore in just a week. Last week, the government raised Rs 22,500 crore by selling a 10% stake in Coal India Limited as part of its disinvestment programme

On Monday, HDFC Bank rose marginally to close at Rs 1,082.30 on the Bombay Stock Exchange.

Is there that much appetite for Indian paper in the market? Yes, seems to be the answer.

"Though a substantial portion of the Coal India issue was subscribed by state-run financial institutions, foreign investors are extremely bullish to invest in quality Indian companies at the right price," said the managing director of a leading foreign bank's local unit, not wanting to be named. He's not part of the HDFC Bank transaction.

HDFC Bank to raise Rs 10,000 crore this week via QIPs and ADRs: Sources"This would possibly be one of the largest follow-on offerings from a private sector institution," he said. HDFC Bank is looking to enter the market at the earliest so that its plans are not complicated by the remainder of the government's fund-raising plan for the fiscal year. Given current indications, the government may launch another share sale any time this week or the next. "The government is fully ready to launch a 5% share sale in Power Finance Corp and Rural Electrification Corp any time. The PFC issue would be worthRs 1,900 crore while REC would be about Rs 1,600 crore," said the banker.

Last week, the Cabinet Committee on Economic Affairs cleared HDFC Bank's proposal to increase foreign ownership to the maximum permissible limit of 74% of total paid-up capital. The bank has been looking to raise Rs 10,000 crore for more than a year but delays in regulatory approvals have kept it from the market. Most of the money will be raised through overseas share sales, said one of the persons cited above

"Out of Rs 10,000 crore, the bank will raise 74% through ADRs in the US market and the balance amount will be raised from the domestic market through the QIP route," the person said. The bank's ADRs are listed on the New York Stock Exchange.

Foreign institutional investors (FIIs) won't be allowed to participate in the domestic issue "as it would result in breaching the sectoral cap", said the second person. In response to emailed queries, an HDFC Bank spokesperson referred ET to a clarification issued by it on Sunday to the stock exchanges. "The mode of capital raising, the timing and type of issuance, i.e. domestic or international, will be decided by the board of directors of the bank/special committee of the board at an appropriate time subject to receipt of necessary approvals, market conditions and other considerations," the statement read.

"This is all that we have on the matter at this juncture," the spokesperson added. The bank is waiting for the communication allowing the increase in foreign investment to 74%, said one of those aware of the plan. "The government has made the announcement but the bank is yet to receive a formal letter," said the person."Once the letter is received, the bank will simultaneously launch the QIP in the domestic market and the ADR issue in the US," the other person said.

"The aim is to launch the issue either on Wednesday or Thursday." After foreign ownership in HDFC Bank crossed 49%, the RBI stopped purchases of its stock by overseas investors in December 2013. Overseas investment up to this level is allowed in private banks through the automatic route and any subsequent increase has to be approved by the Foreign Investment Promotion Board. Subsequently, HDFC Bank moved a proposal to raise the overseas investment limit to 67.55% from 49% but this stalled after RBI, the Department of Industrial Policy & Promotion and the finance ministry's Department of Economic Affairs felt the overseas holding in the bank was already over the limit sought by the bank.

This stemmed from a 2009 foreign direct investment policy guideline that said investment by a company that's majority foreignowned or foreign-controlled in an Indian entity would be considered as foreign investment. This guideline made parent HDFC, which has more than 50% of its equity held by overseas investors, a foreign-owned company and its 22.5% stake in HDFC Bank was counted as an overseas investment.

Source : Economic Times