Indiabulls Housing Finance has raised a total of $600 million via a qualified institutional placement, helped by this week's rally in global equities and strong international interest following the stock's inclusion in the MSCI India Index.
The discounted QIP, which was only approved by shareholders on Monday, was increased by $100 million after the housing lender exercised an upsize option, sources close to the deal told FinanceAsia on Wednesday.
Investor sentiment turned positive on Tuesday as rattled Asian stock markets rebounded, with India's benchmark Sensex index gaining 1.7% and then extending those gains on Wednesday.
However, with the Sensex still within reach of its lowest point in 16 months, Indiabulls Housing Finance took few chances, fixing the final offer price at a 2.74% discount to Tuesday's close or about 12.88 times last year's earnings, the sources close to the deal said.
They added that the final book was well covered and drew orders from more than 30 accounts, with the majority allocated to international investors, including one unnamed global long-only fund that subscribed to about half of the deal.
Indiabulls Housing Finance joined the MSCI India Index on August 31 following a quarterly review. The trading volume on that day increased to $250 million, about nine times the daily average in the previous 30 days.
Although the QIP induces a significant dilution of 13.6% to existing shareholders, Indiabulls Housing Finance shares held up well above the QIP price on Wednesday. The stock ended down 0.8% to close at Rs715.95.
Investors who picked up shares through the QIP will be hoping the mortgage provider continues its strong run in terms of business performance. Its net profit rose 20.7% in the quarter ending June and the share price hit an all-time high of Rs801 in August before retreating as markets globally fell.
A term sheet seen by FinanceAsia does not specify the use of proceeds but sources close to the deal said it will be used to support the expansion of the group's home loans business.
“It is a good time for them to raise capital for expansion although their capital adequacy ratio was already above regulatory requirement before the capital raise,” one of the sources said.
The home loans provider has relied heavily on debt financing historically. Total borrowings rose year-on-year by 34.3% to Rs508.6 billion at the end of June because lending to homebuyers increased simultaneously by 26.9% to Rs522 billion.
An analyst familiar with Indiabulls Housing Finance believes bank borrowings will remain its key funding source whilke the Reserve Bank of India keeps its interest rates low. The central bank has cut the policy rate three times this year to 7.25% amid subdued investment and credit growth.
Meanwhile, Moody’s analysts expect home sales in India to remain flat in the near future because rising prices have made housing unaffordable for many Indians. Significant oversupply of residential properties will also slow down new project launches.
The Indiabulls Housing Finance QIP is the second-biggest of its kind this year after the $650 million offering completed by IndusInd Bank in June.
Bank of America Merrill Lynch, CLSA and SBI Capital were joint global coordinators and book running lead managers of the transaction.
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