By Nesil Staney
HDB Financial Services’ initial public offer (IPO), where India’s largest lender, HDFC Bank, is set to gain a Rs 9,373 crore profit for selling 25%, has priced the issue at a significant discount to prices at which it traded in grey markets. The 52-week high of the stock in the parallel market was an astounding Rs 1,550.
“The price in the grey market does not come from management presentation to serious investors,” said Jibi Jacob, MD and head ECM at Jefferies India. The firm’s grey market price is now about Rs 740, the upper end of the IPO price band. The non-banking financial company (NBFC) IPO is slated to be the largest public offering in India’s NBFC sector so far. This record will be surpassed by Tata Capital, another NBFC-UL which faces the Reserve Bank of India’s (RBI) deadline for listing.
The price was arrived at after consulting a large number of investors, said the bankers. “If we left more on the table, it would give more confidence to investors,” said Sonia Dasgupta, the CEO of investment banking at JM Financial, which is leading the dozen bankers assisting the IPO.
Amit Thawani, managing director and head of Investment Banking at Nomura India, also defended the IPO price discovery post roadshow. Grey market prices are a result of the same set of investors selling to each other in an unregulated space. It is not a true price discovery,” he said.
“The hype in unlisted space, from retail euphoria, doesn’t always match fundamentals,” said an institutional investor. The Draft Red Herring Prospectus (DRHP) filed by the company reveals that the offering comprises a fresh equity issuance worth Rs 2,500 crore, alongside an offer for sale (OFS) of Rs 10,000 crore. HDFC Bank will sell 135.13 million equity shares.
Grey markets are unofficial, unregulated, yet not illegal. It is a sentiment indicator for unlisted companies as it shows investor interest. Two bankers from Nuwama investment banking also held the view that unofficial prices can’t be a benchmark for IPO prices. Tata Capital shares are now trading at Rs 1050, with a market capitalisation of Rs 388,500 crore in the grey markets.