Bank of Tokyo-Mitsubishi UFJ (MUFG) is buying a 20% stake in HDB Financial Services, a non-banking subsidiary of HDFC Bank at a $9-10 billion valuation, ahead of its proposed IPO, said people aware. The final decision is likely to take place next week at the HDFC Bank board meeting, said people in the know. Once announced this will be among the largest deal in the shadow banking space in India.
HDFC Bank owns around 95% of the shadow bank and employees own 5% as ESOPs. The discussions have been ongoing for years but gathered momentum in the last few weeks.
The deal is being done at 5 times book value.
Mails sent to HDFC Bank and MUFG did not immediately generate a response.
A non-deposit-taking lender, HDB Financial could fetch a valuation in the range of $9 billion to $12 billion ( ₹75,000 crore to ₹1 lakh crore) during the IPO, contingent upon prevailing market conditions, ET reported recently.
HDB’s IPO assumes significance as the company must list before September 2025 to adhere to Reserve Bank of India regulations. As of March 31, 2023, the firm operates 1,492 branches nationwide and stands as one of the largest listed finance companies in terms of market capitalisation.
On January 17, HDFC Bank’s CFO Srinivasan Vaidyanathan noted that the bank has time till September 2025 to list HDB Financial Services. He then said said preparatory work on the IPO would begin shortly.
Its total revenue from operations amounted to ₹12,403 crore, with a profit after tax of ₹1,959 crore for the same period. HDB primarily focuses on vehicle loans, loans against property, and personal loans.
HDB’s IPO will be the first issue by the combined entity of HDFC and HDFC Bank. Before the merger, HDFC Asset Management Company and HDFC Life, belonging to the erstwhile HDFC Ltd, were the last subsidiaries to be listed.
MUFG is likely to have 1 board seat to start with. Final discussion over rights, disclosures before IPO is being worked out. A $1.8-$2 billion capital infusion will also be beneficial for the bank.
The unit of HDFC Bank is one of the larger players in the retail financing space. Its asset under management (AUM) rose to Rs 83,989 crore as of December 31, 2023, from Rs 70,084 crore as of March 31, 2023 and Rs 61,444 crore as of March 31, 2022.
Its capitalisation remains healthy, as reflected in overall capital adequacy of 17.99 per cent as on December 31, 2023. Reported net worth stood at Rs 11,952 crore as of December 31, 2023, against Rs 11,437 crore as of March 31, 2023.
The cushion for asset side risks was adequate, as reflected in net worth coverage for net non-performing assets (NPAs) at around 20 times as of December 31, 2023, CRISIL said.
