HDFC eyes up to raise capital amid pandemic

It’s been speculated that HDFC has been planning to raise an amount of Rs 8000 crores to increase the capital buffers and maintain liquidity for future uncertainties. It is due to the outbreak of corona virus which has lead to severe economic disruptions.

Options considered:

India’s top financial services company is having discussions with several Investment banks regarding how to raise capital. The options considered by HDFC limited are sale of shares to institutional investors or a right issue or sale of warrants. A person with knowledge of the subject matter communicated with the media that in the current scenario, it is better to be overcapitalized. In this economic turmoil, profits and increase in net worth cannot be expected soon. He added that the plan to raise capital is in its early stage.

The board is likely to consider the plan and take a decision after declaring the quarterly earnings of its subsidiaries. The plan is to raise nearly Rs. 8000 cross using a dual tranche of QIP, rights issue or warrant issue. The amount of capital raised will be used by the company to deal with higher costs and for expansion purposes. It is due to the current situation that has led many businesses to sell majority of their stakes at cheap valuations. Money mortgage lenders will have an adverse effect on their home sales. There would be a significant impact on the financial health of their borrowers. It is because many businesses cutting jobs and finding it difficult to make payments during this economic slowdown.

The Stress Test on investors:

HDFC Bank Limited, a subsidiary of HDFC Group recently conducted a stress test on its investors. The result showed an increase in the bad assets of lenders. 1.52% of HDFC is owned by mutual funds, 70.88% by foreign portfolio investors and 8.06% by insurance companies.

The current market price of the HDFC Ltd is Rs 1,727 per share. Rs 8,000 crores comes around 2.7% of stake of HDFC Limited.

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