HDFC Bank raises $1.6b from share sale

HDFC Bank is the latest Indian company to tap equity capital markets, with the successful share sale expected to spur more ECM activity in the first half.

India’s HDFC Bank raised $1.6 billion after a dual-share sale in the US and India, capitalising on strong domestic markets to complete the placement.

The private-sector bank sought to raise up to $1.2 billion by selling approximately 22 million American Depository Receipts for the US portion, according to people close to the deal.

The Indian portion meanwhile included an undisclosed amount of shares to domestic institutional investors between Rs1,067.70 and Rs1,067.25 per unit, tacking on an additional Rs15 billion to Rs20 billion ($243 million to $342 million) to the base deal.

The Rs1,067.70 to Rs1,067.25 indicative range represents a 0% to 1% discount to February 4’s closing price of Rs1,067.70, according to another term sheet.

The 22 million ADRs priced on Friday morning at $57.67 per share, allowing HDFC to boost the deal size and raise $1.3 billion, while strong demand from the Indian portion — it was roughly 4 times oversubscribed — allowed the bank to sell shares at Rs1,067 per unit and secure $324 million, one person close to the deal told FinanceAsia.

Allocations were still being finalised on Friday morning but people close to the deal said that roughly 26% of the deal would go to Indian institutional investors while 74% was slated for foreign investors. People close to the deal described both books as a mix of long-only institutional investors and hedge funds.

Shares in HDFC reacted positively to the share sale, rising 0.68% on the Bombay Stock Exchange on Friday morning and 0.59% on the NYSE late on Thursday.

The successful deal coupled with strong domestic stock market performance — India’s Sensex Index is up 5% so far this year — will likely spur other ECM activity in the country. Tata Motors announced a Rs75 billion share sale, while State Bank of India aims to raise Rs150 billion.

Proceeds will go towards improving HDFC’s capital adequacy ratio and boosting lending, the first person said.

Bank of America Merrill Lynch, Credit Suisse, JM Financial, JP Morgan and Morgan Stanley acted as joint global coordinators and bookrunners, while Barclays, Goldman Sachs, Nomura and UBS were joint book running lead managers.

Outlook
Financials are one of the sectors expected to benefit from Prime Minister Narendra Modi’s initiatives. Since Modi’s landslide victory in May, India’s Sensex Index is up 29% so far up to February 5, and it is up 5% year-to-date, making it one of the best performing markets in Asia this year.

It’s a similar story for financials. HDFC’s shares have skyrocketed 51% from May to February 5, while ICICI Bank is up 38% and the State Bank of India has returned 47% in the same time period.

Issuers are taking advantage of the soaring stock market and positive fundamentals to tap equity capital markets. Five companies have raised $3.71 billion from placements in India so far this year to February 5. This compares with $1.31 billion raised in the same prior year period, and $1.94 billion in the first few weeks of 2013, according to Dealogic data.

While some investors and economists said Modi’s first interim budget in July lacked progress on fixing structural economic problems, India’s government appears to have been given a welcome respite.

The halving of oil prices since mid-2014 from over $100 a barrel to under $50 a barrel allowed the government to raise diesel and petrol fuel taxes while slicing diesel prices by as much as 30%. The money saved at the gas pumps will go straight into consumers’ pockets, which could boost its annual GDP growth, argue analysts.

Standard & Poor’s forecasts that India will be one of the main benefactors in Asia of slumping oil prices. “The lower oil prices not only helps their GDP growth through consumption, but it will narrow their fiscal and current account deficits, which [could] decrease external vulnerability,” said Vincent Conti, an S&P economist based in Singapore.

It will also help the country meet its fiscal targets. Modi will unveil a budget for fiscal 2015/16 on February 28, with budget planners optimistic that he will boost Asia’s third-largest economy’s GDP growth from 7% to 8% in the next two years, surpassing China.

Indeed, the government has pocketed nearly $3.5 billion from repeated hikes in tax on fuel, according to media reports. A combination of lower fuel subsidies and the tax hikes to add almost Rs1.1 trillion ($18 million) to the 2015/16 budget.

The government’s efforts to sell minority stakes in state-owned companies and raise $10 billion to help lower its fiscal deficit are well underway. On February 1, India raised Rs226.1 billion after offloading a 10% stake in state-run Coal India.

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