With fundraising plans to the tune of around Rs 1,200-1,500 crore, the exercise is being done to help the government with divestment plans.
Following the successful listings of D-Mart operator Avenue Supermarts and Shankara Building Products, the next company to hit the IPO Street is Housing and Urban Development Corporation (HUDCO).
The IPO is seen as part of government efforts to divest.
Moneycontrol answers a few questions related to the state-run company’s initial public offering (IPO).
What are the details of the issue?
The IPO will open on May 8 and has set a price band at Rs 56-60 per share. The issue comprises sale of 20 crore equity shares (10 percent paid-up capital) by the central government through an offer for sale (OFS). It will close on May 11.
The company aims to raise Rs 1,121 crore at the lower end of price band and Rs 1,201.1 crore at higher end of price band.
What is the company’s profile?
It is a wholly-owned government company which provides loans for housing and urban infrastructure projects in India.
It is a direct beneficiary of housing and urban infrastructure growth and is the support for several government schemes in this space.
As of September 30, the total assets under management (AUMs) are to the tune of Rs 36,110 crore, which includes housing finance assets of Rs 11,290 crore and urban infrastructure finances of Rs 24,820 crore.
What is the objective of the offer?
The exercise is a part of the government’s divestment plan. The Centre wishes to divest 10 percent in the company and all the proceeds will go the government. In fact, HUDCO is less than 3 times leveraged and needs no fresh fund-raising.
Furthermore, it can divest further 15 percent from the state-run firm.
How does their lending differ from traditional lending institutions?
The company has divided its financing activities into two areas.
1. Social housing, residential real estate and retail finance is done by the firm, which is branded as HUDCO Niwas
2. Under social housing, the ultimate beneficiaries of the loans are borrowers belonging to the economically weaker sections of the society, which is defined as families with household income of Rs 300,000 per annum or less, and borrowers belonging to the lower income group, which is defined as families with household income from Rs 300,001 per annum to Rs 600,000 per annum.
What is its dividend policy?
Complying with CPSE Capital Restructuring Guidelines, it has to pay a minimal annual dividend of 30 percent of its PAT or 5 percent of its net worth, whichever is higher, unless an exemption is provided in accordance with the CPSE Capital Restructuring Guidelines.
“The amount of dividend will depend on a number of factors, including but not limited to the future expansion plans and capital requirements, profit earned during the fiscal year, utilisation towards reserves and surpluses, liquidity and applicable taxes including dividend distribution tax payable by our company," it said in a draft red herring prospectus filed with the capital markets regulator.
How are the company’s financials?
The company reported a net profit of Rs 347.55 crore for the first half of FY17, while the net interest income stood at Rs 696.89 crore. The earnings per share (EPS) was also seen at Rs 1.7 per share.Posted by Uttaresh Venkateshwaran