HDFC board approves raising Rs 5000 cr via NCD

HDFC Board has approved raising Rs 5000 crore via non convertible debentures (NCD) along with warrants resulting in a 2.2 percent equity dilution. According to the sources, the approval to raise money is not for any immediate requirement but for any need that may arise in the coming two-three years.
Housing Development Finance Corp (HDFC) – the largest mortgage lender of the country today said its board has approved funding rising worth Rs 5,000 crore simultaneously by secured redeemable non-convertible debentures along with warrants.
The lender will seek shareholder’s approval in its annual general meeting (AGM) scheduled 28 July. The warrant holder will be entitled to exchange the warrants with the equity shares of HDFC at a premium and in line with present norms, the financier said in a notification to the exchanges. 

The maximum dilution that could take place in future, if all the warrants are exchanged into equity shares of the corporation, would be 2.2% of the expanded equity share capital,” HDFC said. The NCDs together with the warrants will be issued to qualified institutional buys, it further added.
According to sources familiar with the development, the funds will be used for making provision for deferred tax liability, financing business growth and also could be used to increase or retain current stake in HDFC Bank. HDFC’s stake in HDFC Bank – the second largest private sector bank -- has fallen to 21.7% from 22.5% after the latter’s qualified institutional placement.
HDFC will also have to entire provision for deferred tax liability over the next three years, -- 25% in the first two years and 50% in the third year.Proceeds would also be used to meet the regulatory requirement for providing for deferred tax liability, which has been eating into its profits. According to analyst there was a 7 percent impact because of this deferred tax liability provision

HDFC has three-year window to make provision of about Rs 2200 crore, which it plans to do in tranches. Another reason why it needs to raise money to make provisions is to maintain its capital adequacy ratio. Currently, HDFC’s Tier I capital stands at 12.3 percent which is expected to get eroded once it makes these provisions. Therefore, some of the proceeds from this NCD will also be used to bridge that gap too.

The outstanding loan book f HDFC grew by 16% in 2014-15 which stood at Rs 2.28 lakh crore compared with Rs 1.97 lakh core as on March of 2014, after taking into account the loans sold during the year.

In the upcoming AGM HDFC will get shareholder approval to raise the money in one-two year timeframe.