Roadshows for HDB Financial’s IPO underway

HDB Financial Services

International roadshows are underway for the multi-billion initial public offering (IPO) of HDFC Bank’s non-banking arm, HDB Financial Services.

Senior officials of the bank and HDB Financial are meeting large investors in the UK, the US, Singapore and Hong Kong, sources aware of the matter told Moneycontrol.

“Roadshows kicked off around the end of December and right now, teams are meeting a few international investors,” one of the sources cited above said.

Large foreign funds, including sovereign funds and pension funds, have been contacted to understand their appetite to invest in a large issuance like HDB Financial, the sources said.

Emails sent to HDFC Bank and HDB Financial Services seeking comments remained unanswered till the publishing of the article.

HDB Financial’s valuation is pegged between $10 billion and $12 billion, around Rs 85,000-1,00,000 crore.

“Final price discovery will depend on the kind of response that HDB Financial draws from interested investors,” said a banker who spoke on condition of anonymity as he is not authorised to speak to media. “It’s too soon to comment on the pricing of the issue.”

Unlisted shares of HDB Financial trade at Rs 1,225 apiece, representing a market capitalisation of Rs 97,154 crore.

Roadshows are in full swing, and HDFC Bank, according to sources, plans to roll out the IPO within two or three weeks of receiving final comments from the Securities and Exchange Board of India. “The aim is to wrap up the IPO of HDB Financial by the end of this fiscal,” said another banker who, too, didn’t wish to be identified.

HDFC Bank filed the draft red herring prospectus with Sebi on November 5. Moneycontrol had on September 4 written about HDFC Bank’s plans to list HDB Financial by March 2025

According to the draft document, the IPO consists of a Rs 10,000 crore of offer for sale by the parent bank and fresh issuance of Rs 2,500 crore. It represents a little over 10 percent stake held by the bank in its NBFC arm. HDFC Bank holds a 94.36 percent in HDB Financial.

On December 16, Moneycontrol reported that HDFC Bank may be in talks with Japan's Mitsubishi UFJ Financial Group (MUFG) for a 20 percent stake sale in HDB Financial.

Sources say with the overhang of regulatory requirements not likely to be resolved despite the possible stake sale to the Japanese financial conglomerate, HDFC Bank decided to go ahead with the IPO.

“Further, valuations remained a thorny issue, and the belief is that once the listing is done, it will help settle the dust around the asking price for the NBFC, paving the way for a smoother secondary sale,” said a banker privy to the development.

Regulatory overhang

On October 8, the Reserve Bank of India issue a circular, “Form of business and prudential regulations for investments”, which says that a bank and its subsidiaries cannot operate similar lines of business. If they do, banks will need to pare stake in the subsidiary within two years. However, several representations have been made by banks to defer the move or give more time for adherence.

Macquarie in a January 7 report said the draft RBI regulations on the overlap of similar businesses creates an overhang and could thus affect valuations of HDB Financial and HDFC Bank.