Exclusive: HDFC joins fundraising bandwagon, looks to collect around Rs 12,000 crore

India’s largest private sector mortgage financier Housing Development Finance Corporation (HDFC) is gearing up for a mega fund raise of around Rs 12,000 crore in multiple tranches, sources with knowledge of the matter told Moneycontrol.

“HDFC has held discussions with merchant bankers in the past few weeks and is looking to raise around Rs 12,000 crore via a combination of a QIP (qualified institutional placement) and an NCD (non-convertible debenture ) + warrant or FCCB ( foreign currency convertible bond route),” one of the individuals cited above told Moneycontrol.

“The QIP component is slated to be around Rs 7,000 crore and the convertible component around Rs 5,000 crore. The plan is for each chosen instrument to be launched separately,” a second individual added, warning that no final decision on the quantum or fund raising instruments has been taken yet by the NBFC behemoth.

A debenture is a type of debt instrument unsecured by collateral. The debentures which can’t be converted into equity or shares are called non-convertible debentures. A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiration date. FCCB is a type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of foreign currency. A convertible bond is a mix between a debt and equity instrument.

“HDFC wants to strengthen its balance sheet through this fund-raising exercise and boost its capital buffers during this uncertain phase. It can also be well prepared in case of any asset quality concerns due to its exposure to the real estate sector,” said a third individual.

“Many of the financial services players will look to raise money quickly as part of forward planning to accommodate any substantial slips in asset quality once the moratorium is lifted. They would rather raise capital at today’s share price than raise it later,” according to the fourth individual.

The Reserve Bank of India (RBI) granted a moratorium on term loans whose instalments are due between March 1 and May 31, which was later extended till the end of August. The moratorium is intended to provide borrowers some relief during the novel coronavirus, or COVID-19, pandemic and consequent lockdown.

All the four individuals spoke to Moneycontrol on condition of anonymity.

According to a stock exchange intimation, a meeting of the committee of directors of HDFC will be held on June 19 to consider seeking shareholder nod for raising funds “by issue of equity shares and/or other securities through any permissible modes.” The shares of HDFC on June 16 closed 4.03 percent higher at Rs 1,822.80 a piece on BSE. HDFC has raised capital via the NCD + warrants route on two earlier occasions: in 2009 and 2015.

The company reported a standalone profit of Rs 2,232.5 crore for the quarter ended March, down 22 percent year-on-year 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, which included the impact of COVID-19, against Rs 398 crore YoY.

The management 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 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 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.