HSBC's sale of Indian bank shares yields $423 million

HSBC ended up raising $423 million from the sale of its entire holdings in India’s Axis Bank and Yes Bank after fixing the price of both transactions above the bottom of the indicated ranges — in the case of the smaller Yes Bank deal above the mid-point even.

The bookbuilding for the two concurrent block trades took place after the market closed on Wednesday, but the price wasn’t revealed until after the shares were crossed on the Indian stock exchanges yesterday.

According to a source, the Axis Bank trade was priced at Rs955.90, which translated into a discount of 4.5% versus Wednesday’s close of Rs1,000.95. The shares were marketed in a range between Rs950.90 and Rs970.90, or at a 3% to 5% discount. The final price resulted in a deal size of Rs18.74 billion ($328 million).

The Yes Bank deal was priced at Rs323.10, which equalled a discount of 3.5% versus Wednesday’s close of Rs334.85. The shares were marketed in a range between Rs318.10 and Rs324.80, which also translated into a discount of 3% to 5%. The total deal size was Rs5.43 billion ($95 million).

As reported yesterday, both deals were well received by investors with Axis Bank said to be comfortably covered and the smaller Yes Bank deal multiple times covered. The excess demand helped support the stocks in the secondary market as well and both names held well above the placement prices yesterday. Axis Bank fell 2.2% on the day to Rs978.60, which left it 2.4% above the placement price. Yes bank dropped just 1% to Rs331.6, which meant it finished 2.6% above the placement price.

India’s benchmark Sensex index was up for a third straight day, adding 0.14% and pushing the year-to-date gains to 9.9%.

Despite the efforts by the bookrunners to keep the price confidential before the shares were crossed on the exchange, traders were able to “steal” quite a few of the Yes Bank shares by putting in a bid slightly above the placement price when the bookrunners put in their orders in the automated matching system. There was no information about exactly how much of the deal was diverted away from the investors who took part in the placement through this action, but a source said it was “quite a bit”. This may have added to the support for the stock yesterday as orders had to be scaled back more than originally planned. The loss of Axis Bank shares through the cross was said to have been significantly smaller.

As reported yesterday, HSBC sold 19.6 million Axis Bank shares, which accounted for 4.75% of the company and about four days of trading, including derivatives-related turnover. The latter was relevant because there was an option expiring yesterday leading to higher volume. Excluding the placement shares, 12.9 million Axis Bank shares were traded on the National Stock Exchange yesterday, which is about five to six times the daily volume in recent weeks.

The Yes Bank transaction comprised 16.8 million shares, equal to 4.75% of the company and about six days of trading, including derivatives-related turnover. Yes Bank saw 13.5 million shares change hands on the NSE yesterday, excluding the placement shares, which is about four to seven times the recent daily volume.

Sources said the type of demand was quite similar for both deals with strong local support and good interest from global long-only funds, including some US-based accounts. About 40 to 50 investors participated in each of the transactions and there was said to have been quite a bit of overlap between the two deals.

HSBC’s exit from the two Indian banks is part of an ongoing drive from the UK-headquartered lender to dispose of non-core assets. Last year it sold — or closed — 16 non-strategic businesses and in the first four-and-a-half months this year it announced another 14 disposals or closures, including the sale of its retail operations in Thailand.

HSBC has held the Axis Bank shares since 2004 when it bought a 14.6% stake in what was then known as UTI Bank for $67.6 million. However, Indian regulators later decided that it couldn’t hold more than 5% of the bank, forcing it to sell about two-thirds of its original investment. It bought the stake in Yes Bank after that divestment was completed.

Goldman Sachs and HSBC were joint bookrunners for the two blocks.