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We are open to organic growth opportunities: Keki Mistry

In an interview with ET Now, Keki Mistry, HDFC Ltd , says th..

In an interview with ET Now, Keki Mistry, HDFC Ltd , says they are going to raise Rs 11000 crore via preferential share sale and Rs 1896 crore via QIP. Of the Rs 13,000 crore raised, Rs 8,500 crore will be invested in HDFC Bank and with the remaining money, is planning a foray in health insurance.

Edited excerpts:

You are going to raise nearly around Rs 11000 crore via preferential share issue to 10 investors and also approximately Rs 1896 crore via QIP to institutional investors. Give us some more details.
Some time back we had announced an equity raise of Rs 13000 crore and we said that the amount will be raised via a mix of preferential offer and QIP. Now based on those discussions that we had with a few investors over the last couple of weeks, we got a total of Rs 11000 crore from five broad investors GIC, KKR, Premji, OMERs, Carmignac.

Just one clarification is the Rs 1896 crore via QIP over and above the Rs 11100 crore?
That is correct. Rs 11100 crore represents the preferential offer out of the total of Rs 13000 crore. The balance Rs 1890 odd crore will be through a QIP issue for which there is time. Now, the process that will be followed is that there will be a postal ballot via which we are seeking approval of shareholders. We are given 40 days' time period for that approval to be in place. When that approval is received, within 15 days, the preferential offer has to be closed, that is the Sebi rule. Now as far as the QIP is concerned, we have significantly more time to do it once the shareholder approval is in place.

What is the amount that you would be infusing or giving or investing in HDFC Bank?
Rs 8500 crore out of the total of Rs 13000 crore. We are planning to raise Rs 11000 crore through the preferential offer which incidentally carries a one-year lock-in period. The remaining Rs 1890 crore will be through a QIP issue which will come at a later date. Out of the money that we raise, Rs 8500 crore would go into investing in HDFC Bank.

How would the rest of the funds be utilised going ahead and its impact on your capital adequacy?
Obviously, capital adequacy goes up depending on how much we invest in subsidiaries because whatever we invest in our subsidiaries, gets reduced from tier-1 capital. But the immediate impact of raising this equity is capital adequacy will go up but you must remember that the capital has not been raised as yet. At this moment, we have only entered into an agreement with these investors where we will allot them shares after the approval is received from the shareholders.

First, we have to get our shareholder approval and any other regulatory approvals that are required and then the allotment will take place. And what we will do with the remaining money as we mentioned when we had the December meeting is we are looking at a foray into health insurance. We believe that the health insurance sector in India offers huge opportunities for growth so that would require some amount of capital.

We have also said that we are looking at some kind of a stressed asset either a fund structure or a corporate structure or a corporate structure which will decide on later but something to do with stressed real estate. That is our core competence. We understand housing, we understand real estate and we know that there will be several projects across the country where there is some stress. If the developer is not able to complete the project, we can acquire those projects at an incomplete stage, get a good developer to complete the project, give it an HDFC brand and then sell it at a higher price. We believe there is a lot of scope for doing that.

Are you raising so much of capital because you feel fairly confident in terms of the credit growth opportunities that you are seeing into the system, not just for HDFC Ltd but also for HDFC Bank?
For HDFC Bank, you will have to ask them directly but as far as HDFC is concerned, we see growth opportunities further in the sense that the mortgage market in India is so hugely underpenetrated and we have such a young population that the scope for growth is massive. There are government incentives. The government has been encouraging people to buy houses and encouraging builders to build more of affordable housing projects. So as far as individuals are concerned, fiscal benefits have been provided. In addition to these fiscal benefits, a subsidy scheme is in place. There are a lot of incentives that the government has given to encourage more people to buy houses. I would be fairly confident that the demand for housing in India will remain strong for a long time to come.

Would you be open to any inorganic growth opportunities — not just for HDFC Ltd at the group level but also in terms of your subsidiaries and what would they be?
We are certainly open to organic growth opportunities whether it is at the HDFC level or at the level of any of our subsidiaries but that depends obviously on the opportunity that is available. For example, in the general insurance business we did some acquisition– we did a merger less than a year ago. In the asset management business, we have done a couple of acquisitions in the past. So, obviously these inorganic opportunities do come up from time to time and if we have the capital then it becomes a lot easier to do a transaction.

When could we see the listing or any further progress or update on HDFC AMC?
We have said that we plan to do an IPO. The board is going to meet a little later in the month when we will take a final call on the dates but my sense is that it will certainly be in calendar year 2018 and it should be in the first half of 2018.

Would you leave us with any expectations in terms of budget from your end?
The budget will focus on three broad areas; rural areas because agriculture growth has not been strong; housing I think will continue to be the focus area as it will kickstart economic growth because of the number of jobs that are dependent on the housing sector. And the third sector which will get a lot of traction will be infrastructure.

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