HDFC shares fall 5% on Carlyle exit

India's top mortgage lender Housing Development Finance Corp fell 1.7 percent in pre-open trade as US private equity firm Carlyle Group is set to sell a 3.7 percent stake to raise as much as USD 861 million, according to a term sheet.

The US fund, which currently holds its stake in HDFC through its arm CMP Asia, has mandated Citigroup's India arm to offload 5.7 crore shares through block deals at a price of Rs 760-781 per share. Speaking to CNBC-TV18, Keki Mistry, VC & CEO of HDFC said he was aware of Carlyle's exit plans. "We have seen fairly strong interest in the HDFC block," he said. Mistry said about 50 long-only investors have participated in the deal so far and over 50% of the block has been sold to foreign investors. Below is the edited transcript of Mistry’s interview with CNBC-TV18. Q: Can you confirm this stake sell by Carlyle, who has been the major buyer and which are the big funds that have evinced interest this time around? A: We will get to know the details only when the shares are registered with us, but my understanding from talking to the market players is that there has been a fairly strong interest in the deal. There are number of investors - 40-50 odd investors, it is not one or two so it is very widely dispersed. Most of these are long-only investors, some are domestic, some are international and most of them are long-term FII investors.  We will have to wait to get the final details from the registrar as to who these buyers are. Q: Do have some idea as to how much of the percentage of the shares went to FIIs or foreign funds and how much went to domestic? A: I am not exactly sure of what it is; my understanding is it will be about 50 percent or more than 50 percent that could have gone to foreign funds. Q: This is the second stake sell by Carlyle this year after January, do you think they would look to exit their complete stake? A: Carlyle is a private equity fund. It is not an FII and therefore Carlyle’s investment has a limited life. Q: You were telling us about this stake sell, has Carlyle exited completely? A: Yes. Carlyle has exited completely. Carlyle is a private equity fund, it is not an FII and therefore this fund has a limited life. At an appropriate time, they would necessarily exit from a company. When they spoke to us yesterday afternoon, we had only three requests to them, one is that when you sell your shares, leave something on the table for a new investor, so there is an incentive for a new investor. Second is that when you sell please sell everything lock, stock and barrel, so do not leave something behind to create an overhang in future. Third is to try and place the shares with long-only investors, so that gives a lot more stability in terms of the holding power of the purchaser. From what I understand, all these three conditions, all these three requests have been met. Q: Would you worry that now with Citi exiting and now Carlyle that there is a feeling that HDFC’s best years are over, there isn’t much more to juice out? A: I do not think so. Carlyle is a private equity investor. Citi has its own reasons for divesting. Both these people we knew were going to exit. Infact Citi’s sell of shares had created a bit of an overhang and so had Carlyle’s and therefore I believe that with overhang now having gone, hopefully the performance over the coming months would be even better. _PAGEBREAK_ Q: Now that we have you after some important potential legislative action has been taken, just wanted your views on whether now you will start seeing a substantial improvement at your end in terms of demand for housing, is investor sentiment, consumer sentiment charged enough, is business changing on the ground personally for you? A: Business never changed. Even in a period of high interest rates, the growth was very strong. If you take Q1 of the financial year for which the results are before you, against the guidance of 18-20 percent growth had actual growth numbers of individual loans that we had given, the increase in the loan book was as much as 29 percent, after adding back the loan sold in the last 12 months. The growth has never sold down and it was high even in a higher interest rate environment. Therefore, even if interest rates were to come down in the coming weeks or coming months, I am not so sure that it will create a huge increase in the demand. The demand has remained robust right through Q2, I do not want to get into financial numbers, but consumer sentiment continues to remain strong and there has been no slowdown in the demand for housing loans. Q: I have a specific question now that the FDI in insurance has come through, will you look to unlock value in terms of any kind of stake sell etc in HDFC Standard Life? A: As per the agreement we have with Standard Life we have an option if they wish to increase their stake at fair value and we would need to talk to them to see whether they want to exercise that option or not. Probably then they want to exercise that option but that is something we will have to talk to them. But at this moment, let us not jump the gun, the cabinet has approved the FDI proposal, parliament has not yet approved it. We need to wait for parliamentary approval. Q: How is the deal structured, do you get a market value? A: We get a fair value. Q: But is that a shifting value for instance in the Bajaj Alliance case it is fixed at 16 percent return for Bajaj? A: No, ours will be a fair value. Q: Do you think the bunch of announcements are enough for you to see the capex cycle starting to turn and get positive, what are you picking up in terms of the pulse of the industry? A: What I am picking up talking to people in industry is that the sentiments have improved dramatically in the last three-four weeks. Expansion plans which were sort of shelved, people are relooking at those expansion plans. I am not sure if people are immediately ready to sort of commit large investments, but definitely people are looking at it much more seriously now than what they were three weeks ago.