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Housing Development Finance Corp. Ltd (HDFC) plans to raise as much as ₹Rs 8 billion to bolster its capital reserves and prepare for future uncertainties amid widespread economic disruptions from the covid-19 outbreak, four people familiar with the development said.
India’s leading mortgage lender has begun talks with various investment banks to decide whether to raise capital by selling shares to qualified institutional investors, selling warrants or a matter of rights, the people said on condition of anonymity.
“It is better to be overcapitalized in these difficult times. Earnings are not going to come quickly and the accumulation of net worth will be slow,” said one person close to HDFC, one of the four listed above.
The capital fundraising plan is in the early stages and the lender’s board will likely make a final decision after its subsidiaries declare their quarterly earnings, the person said.
“The plan is to raise ₹Rs 5,000-8,000 million, through a double tranche of QIP, the issuance of the order and a subsequent issuance of rights. The money will be used primarily to prepare the home finance company to deal with higher provisioning costs and also to expand inorganically, as many companies within the credit industry may be preparing to sell majority stakes at cheap valuations in the wake of the crisis and the prolonged blockade, “said a second person named above, who also declined to be named.
Mortgage lenders are likely to be affected by the slowdown in home sales and a significant deterioration in the financial health of their borrowers, as many companies cut their jobs or resort to wage cuts as they deal with the economic consequences of coronavirus blockade.
However, an HDFC spokesperson denied that the lender was seeking to raise capital.
A stress test carried out by the group’s banking subsidiary, HDFC Bank Ltd, recently found that the crisis can cause a sudden increase in bad assets for lenders. Mutual funds currently own 9.52% of HDFC; foreign portfolio investors own 70.88% and insurance companies own 8.06% of the mortgage lender.
At the current average market price of ₹1,727 per share, at ₹The capital issue of Rs 8,000 million translates into a share of around 2.7% in the mortgage lender. HDFC’s market value has fallen from ₹4.17 billion at the end of December for ₹2.95 billion on Tuesday. Many lenders are concerned that if equity markets worsen further due to the impact of covid-19, raising capital through the sale of stocks may become unfeasible in the coming months.
As of December 31, HDFC had ₹5.05 trillion in gross outstanding loans, with 7.5 million housing units financed. The lender had a delinquent loan value (NPL) ₹Rs 5,950 million for the December quarter. Non-performing loans were 0.75% for individual loans and 2.91% for non-individual advances. The lender carried provisions worth ₹9,934 crore during the third quarter.
