HDFC raises $2.3b as foreign investors warm to Indian bank

It's the world's most expensive bank by book value, but overseas investors shrugged off concerns about India's banking sector and gave strong support to its dual-tranche share sale.

HDFC Bank raised Rp155 billion ($2.26 billion) on Wednesday in the largest ever issue of primary shares by a private sector bank in India, underscoring a revival of foreign investor interest in India’s banking sector that has long been overshadowed by weak asset quality and mounting bad debt.

The Mumbai-based lender could not have timed the share sale better, launching just as its domestic shares and American Depositary Receipts both hit new highs.

The boost in its share price saw HDFC Bank valued at around 5.2 times book value on a trailing twelve-month basis, making it the world's most expensive bank by that measure. But this did not deter international fund managers from buying into the stock.

Using a similar structure to its $1.6 billion share sale three years ago, HDFC Bank's dual-tranche share sale comprised $1.81 billion of American Depositary Shares and a $404 million qualified institutional placement (QIP) of domestic shares, defying market rumors it would raise the new funds solely from domestic investors.

The 17.5 million ADS sale, which was launched before US market open on Monday, was priced at $104, or a 5.2% discount to the stock’s $109.65 closing price last Friday. The offer price of the 12.8 million domestic shares was fixed at Rp2,160, or a 0.4% discount to its closing price on Monday.

Compared with the indicative terms at deal launch, HDFC Bank has scaled back the international tranche from 19 million ADS to 17.5 million ADS. At the same time, the QIP was expanded to $404 million from about $290 million at the offer price.

However, that did not change the fact international investors took the bulk of the share sale, unfazed by the fact the ADRs were about 11% more expensive than the domestic shares based on the current exchange rate.

One equity strategist told FinanceAsia while many investors were underweight on India’s banking sector as a whole, the sentiment towards private sector lenders was much better than public sector banks.

“Public banks are exposed to many stressed assets but many private lenders are staying away from them,” the equity strategist said. “Investors have to be very selective when it comes to investing in Indian banks.”


HDFC has a loan portfolio that is nearly free from the financially-stressed sectors such as energy, resources and aviation. It is able to keep its asset quality at a high level as it lends over half of its loans to low-risk borrowers like retail investors, whose overall credit profile has been improving on stronger consumption power.

The bank’s exposure to mortgage loans is also minimal as it tries to stay away from the potential risk of a household debt bubble. India’s mortgage debt has been rising steadily since the 2008 financial crisis and the outstanding amount is now as large as 11% of the country’s gross domestic product.

As of the end of March, HDFC Bank’s gross non-performing loan ratio was 1.3%. During the same period, the average gross NPL for public-sector banks was a staggering 14.6%.  

HDFC Bank, picked by FinanceAsia as the Best Bank in India, is one of eight lenders that raised equity on the back of a strong surge in share price since the government announced a $32 billion recapitalisation plan for local banks in October, spurring hopes the long-standing bad debt woes could ease. 

According to Dealogic, the likes of Punjab National Bank, Bandhan Bank, Union Bank of India and Syndicate Bank have raised $2.3 billion of equity through initial public offerings and follow-on offerings since New Delhi unveiled the plan.

HDFC’s $2.26 billion dual-tranche share offer is the second largest issue of primary shares in Indian history behind State Bank of India’s $2.3 billion capital raise in June last year.

Joint global coordinators for both the ADR and QIP were Bank of America Merrill Lynch, Credit Suisse, JP Morgan and Morgan Stanley.

Joint bookrunners for the ADR were BNP Paribas, Goldman Sachs, Nomura and UBS. Joint book-running lead managers for the QIP were Edelweiss, IIFL, JM Financial and Motilal Oswal.

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