This is arguably the biggest consortium of merchant bankers/advisors ever taken on board by an Indian corporate for fundraising purposes in the equity capital markets and sets a new record for India Inc.
India’s largest private sector mortgage financier Housing Development Finance Corporation (HDFC ) Ltd has finalised a legion of as many as 19 merchant banks for its fundraising exercise aimed at raising up to Rs 14,000 crore and bolstering its balance sheet, multiple sources with knowledge of the matter told Moneycontrol.
This is arguably the biggest consortium of merchant bankers/advisors ever taken on board by an Indian corporate for fundraising purposes in the equity capital markets and sets a new record for India Inc, these sources said. Moneycontrol was the first to report the finance powerhouse’s fundraising plans on June 17, 2020.
“Morgan Stanley, Kotak Mahindra Capital, Bofa Securities, Jefferies, JP Morgan, Citi, Nomura, HSBC Securities, BNP Paribas, Credit Suisse, UBS, Goldman Sachs, SBI Capital, ICICI Securities, JM Financial, Motilal Oswal, Axis Capital, HDFC Bank and IIFL Capital are the 19 merchant banks which have been shortlisted by HDFC Ltd,” said an individual familiar with ongoing deliberations.
Three other individuals confirmed the names and quantum of the merchant bankers.
Typically, corporates engage multiple merchant banks for big-bang fund raises which can turn out to be complex, logistically challenging exercises and may be carried out in one or more tranches. Global and domestic merchant bankers are key to the success of these exercises and are involved in several aspects of the transaction based on their respective strengths. These include marketing the issue in India and overseas, tapping marque investors, due diligence and documentation, compliance and coordination with various parties including regulators amongst other functions.
Earlier this year, Reliance Industries had appointed 14 merchant bankers for its Rs 53,000 crore rights issue which kicked off on March 20, 2020. This was India’s biggest ever equity fund raise and the world’s biggest by a non-financial issuer in the last ten years.
Another instance of a big clutch of advisors being engaged was Bharti Infratel’s 2012 IPO which raised Rs 4,118 crore and had 13 merchant bankers. The Rs 4500 crore Mindspace Business Parks REIT IPO backed by K Raheja Corp and Blackstone, which is likely to be launched later this month, also has 13 merchant bankers on board, a second individual added.
“HDFC Ltd is mulling a QIP of NCD + Warrants but hasn’t taken a final call on the fundraising mechanism as yet or the number of tranches. The fund raise is likely to be launched in August post shareholder approval,” a third individual told Moneycontrol.
HDFC Ltd has raised capital via the NCD + warrants route on two earlier occasions: in 2009 and 2015. The 43rd AGM of the firm is scheduled to be held on July 30, 2020. Other financial sector heavyweights like ICICI Bank and Axis Bank are also looking to raise up to Rs 15,000 crore each and strengthen their respective capital buffers.
All the four individuals spoke to Moneycontrol on condition of anonymity.
JP Morgan, Goldman Sachs, HSBC Securities, ICICI Securities, Credit Suisse, UBS and Jefferies declined to comment in response to an email query from Moneycontrol. Moneycontrol is awaiting an email response from HDFC Ltd and the other merchant banks and will update this article as soon as we hear from them.
HDFC Ltd: On the prowl for M&A?
On June 19, 2020, HDFC Ltd announced that the fundraising exercise was aimed at augmenting its long term resources, finance organic and inorganic business opportunities that may arise in financial services including housing finance and /or in areas where its subsidiaries operate, and to maintain sufficient liquidity and for general corporate purposes.
In the emerging scenario, there may be 'inorganic opportunities' for Housing Development Finance Corporation's (HDFC) group companies, HDFC Chairman Deepak Parekh said on July 2. He added that the company has identified new investment opportunities and some of its subsidiaries will require additional capital for their expansion plans.
The company reported a standalone profit of Rs 2,232.5 crore for the quarter ended March 2020, declining 22 percent due to higher provisions related to COVID-19 and high base last year. Provisions (expected credit loss) increased significantly to Rs 1,274 crore for the quarter ended March 2020 which included the impact of COVID-19, against Rs 398 crore in March quarter 2019.
HDFC said it has made provisions of Rs 10,988 crore as of March 31. This is Rs 6,800 crore over and above the regulatory requirement. To be sure, HDFC Ltd has a capital adequacy of 17.7 percent (of which 16.6 percent is tier one capital), which is one of the highest in the financial sector in India.
The gross non-performing loans as of March 31, 2020, stood at Rs 8,908 crore. This is equivalent to 1.99 percent of the loan portfolio. The non-performing loans of the individual portfolio stood at 0.95 percent while that of the non-individual portfolio stood at 4.71 percent.