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May list insurance JV after Standard Life stake hike: HDFC

In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, HDFC Vice Chairman and CEO Keki Mistry spoke about Standard Life’s decision to up its stake in the company’s insurance joint venture from existing 26 percent to 35 percent, at a price of Rs 95 per share.

Below is the transcript of the interview on CNBC-TV18.

Latha: Standard Life has taken 35 percent which is an additional 9 percent. They had the option to go to 49 percent, why did they stop at 35 percent?

A: Standard Life had the option to go up to 49 percent but if they had gone to 49 percent then an IPO would have been difficult. If they were at 49 percent and we were at 51 percent and we did an IPO which would have meant 25 percent of the shares were in the public domain then necessarily we would have had to come down. So, it was a long discussion we had with Standard Life, which culminated in their ultimate desire to increase the shareholding to 35 percent.

Latha: How did you arrive at the valuation of Rs 95 per share? It works out a little tad lower than the valuation at the time Azim Premji Trust took that 1.5 percent stake. How did you arrive at Rs 95?

A: There are two or three things. One is Standard Life and HDFC have a long-term relationship because there was always an understanding that they would increase their stake to be on parity with us. Now if we were to do an IPO then it was necessary that Standard Life reduces their stake to a lower level.

They have contributed to the growth of the company over the last so many years, the insurance sector opened in 2000 but our memorandum of understanding with Standard Life goes back to the late 90s, so there was always a belief that it would be a 50-50 venture.

Standard Life had contributed to the growth of the company procuring their actual support and so on and so forth in the initial stages of the company. All that is recognised in the fact and they had the option to go to 49 percent.

Now that they have given up the option to 35 percent, what will happen is post this Standard Life transaction subject to all the regulatory approvals we will look at doing an IPO sometime in 2016.

Sonia: Why would you want to push the Initial public offering (IPO) to 2016, the market is quite good even now?

A: The Standard Life transaction has to be put through, so, we need all the regulatory approvals. There is an Insurance Regulatory and Development Authority (IRDA) approval, there is a Securities and Exchange Board of India (SEBI) approval, there is a Foreign Investment Promotion Board (FIPB) approval. So, my sense is those approvals will take a little while.

Then we have to file for an IPO; now filing for an IPO in date means that we have to first go to IRDA and then again we have to go to SEBI for an IPO. So, my sense is that it will take some time to get that done.

Sonia: Approximately how much will you look to divest in the IPO?

A: Ideally we would like to do 10 percent and then maybe the SEBI requirement is to go up to 25 percent; we can do that 25 percent over a period of time. However, initially the starting point would probably be 10 percent.

HDFC stock price

On August 17, 2015, at 09:40 hrs Housing Development Finance Corporation was quoting at Rs 1282.00, down Rs 17.8, or 1.37 percent. The 52-week high of the share was Rs 1399.80 and the 52-week low was Rs 975.25.

The company’s trailing 12-month (TTM) EPS was at Rs 38.10 per share as per the quarter ended June 2015. The stock’s price-to-earnings (P/E) ratio was 33.65. The latest book value of the company is Rs 196.46 per share. At current value, the price-to-book value of the company is 6.53.

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