HDFC Bank restarts talks with Mitsubishi UFJ for HDB Financial stake sale ahead of IPO: Report

HDFC Bank has resumed discussions with the Japanese financial giant Mitsubishi UFJ Financial Group (MUFG) for a sizeable stake sale in its subsidiary HDB Financial ahead of its initial public offering (IPO), Moneycontrol reported on Monday, December 16, citing people aware of the development.

“Officials of the bank are once again in touch with senior management of MUFG,” said one of the sources cited in the report. The news portal also reported that the discussions were at initial stages, and it was too soon to say if a deal would be finalised. 

According to the sources cited by the news portal, Reserve Bank of India (RBI) norms, introduced on October 4, likely have made HDFC Bank rethink a probable stake sale ahead of the IPO.

The private sector bank has offered a 20 per cent stake in its non-lending subsidiary, HDB Financial, to MUFG and is said to be more flexible when it comes to deal valuations, reported the news portal.

HDFC Bank shares closed 0.39 per cent higher at ₹1,864.80 on Monday, compared to ₹1,872.05 at the previous market close.

Email queries sent to HDFC Bank, HDB Financial and MUFG by the news portal remained unanswered, as per the report. 

Earlier talks

Discussions held between HDFC Bank and MUFG around April involved a 20 per cent stake sale in HDB Financial’s non-lending arm. However, the discussions fell through, as the companies were at different valuations.

According to the sources, this time, HDFC Bank is more flexible in negotiating for the valuations, reported the news portal on Monday.

They highlighted that restarting the talks with MUFG is intended to ensure that the circular on “form of business and prudential regulations for investments” issued on October 8 assumes finality. As per the report, a stake sale in HDB Financial ahead of the IPO may smoothen the process for further dilution in the future. 

The circular states that banks have two years to reduce their stake in subsidiaries, but according to the news report, the bank officials said the time limit would not be enough.

“For something like HDB Financial which is commanding about ₹80,000 crore of valuation, to pare significant stake in two years may be very difficult,” an investment banker told the news portal. “It would make it easier for HDFC Bank to bring in a large investor ahead of HDB Financial’s IPO and then divest stake if required,” they said. 

Holdings

HDFC Bank holds a 94.36 per cent stake in HDB Financial. The NBFC arm of the bank proposed an initial public offering comprising a fresh issue of ₹2,500 crore equity shares and an offer-for-sale (OFS) component of ₹10,000 crore. This would be 10 per cent of the stake owned by HDFC Bank, as per the news report.

If the discussions with MUFG are successful, HDFC Bank may end up cutting its stake to nearly 61 per cent, according to the news report.

“Given that it’s the second time HDFC Bank is engaging with MUFG for a stake sale in HDB Financial, it would be too premature to say which way the talks will go,” reported the news portal citing a banker aware of the development.

LiveMint couldn’t independently verify the report.