HDFC eyes Canara’s 30% in its arm

Mumbai: HDFC has emerged as a frontrunner to acquire Canara Bank’s 30% stake in the housing finance company Can Fin Homes. HDFC filed a cash-cum-stock offer and is seen running ahead of rival bids from private equity firms like Baring Asia and others, people familiar with the matter said.


HDFC is likely to offer upfront cash for 14% stake and simultaneously unveil a share-swap ratio for the remaining 16% shares, sources added. Canara Bank is expected to offload these HDFC shares with an upside sometime later. If this share-swap proposal goes through, it may not necessitate HDFC to make a mandatory open offer for an additional 26% from public shareholders.

A sharp rally in share price deterred some of the bidders from making a formal offer. Can Fin Homes shares ended at Rs 549 in Mumbai trade on Wednesday, pegging its market capitalisation at about Rs 7,300 crore or $1.2 billion.



RBL Bank and Singapore investor Temasek were the other possible contenders. Sources said RBL dropped out of the race, while it wasn’t clear if Temasek has made a formal offer. The private equity firms would be making an all-cash offer, which could turn out to be an expensive affair given that the mortgage lender commands a valuation is nearly five times its total income of Rs 1,353 crore.

There was speculation that some of the all-cash private equity offers might be coming at a slight discount to prevailing market price, though this could not be confirmed.

Last year, Canara Bank had sold a 13.5% stake to GIC of Singapore for Rs 753 crore, or $113 million, signalling its intent to exit the housing finance unit.

According to sources, one of the reasons for HDFC to look at Can Fin Homes was that it complemented the portfolio of Gruh Housing as there was no overlap. Also, the Can Fin Homes portfolio mirrors that of HDFC in credit profile. Can Fin has 132 branches and 20 affordable housing finance centres with a particularly strong footprint in the southern markets.

HDFC has raised a war chest of over Rs 11,000 crore through a preferential issue which the company had said would be used for, among other things, acquisitions. HDFC appears to be shedding its reluctance for acquisition-led growth and is seen chasing multiple inorganic opportunities in housing finance and insurance. In housing finance, its last deals were acquisition of Hometrust Housing Finance Company from Gujarat Ambuja and a stake buy in Gruh Finance.