Mumbai: The Hinduja familybacked IndusInd Bank is looking to raise as much as $500-750 million “confidence capital” from marque global investors to soothe investor nerves frayed by worries over rising bad loans due to the Covid-19 outbreak and outflow of deposits after the collapse of Yes Bank. The private lender, arguably the worst-hit bank stock since the coronavirus outbreak, has mandated Morgan Stanley and Citi to tap a handful of PE funds, people close to the development added.
Global funds such as Blackstone, Apax Partners, General Atlantic (GA), Advent, TPG and Carlyle have been approached.
Other bidders are also expected to join.
The bank’s current market capitalisation is Rs 23,739.73 crore ($3.2 billion). Sources said the promoters are looking at 5-10% dilution, subject to RBI approval.
At current prices, 10% of the bank would be valued at Rs 2,373 crore ($320 million) while a 20% dilution would help raise $641 million. Deal Size may go UpThe management, therefore, may negotiate an upfront equity infusion through a preferential allotment that happens at a premium as well as issue warrants at higher prices that get subscribed at a later date. The plan, according to sources, is to onboard a maximum of 3-4 reputed investors who have “patient longterm money to invest”.
The investors are likely to negotiate board seats and other affirmative rights which the bank’s promoter family and management are likely to consider. The talks are, however, preliminary in nature.
The deal size might also go up if the stock decline continues, putting more pressure on the promoters.
The transaction is similar to the Bain investment in Axis Bank in 2017 that saw the Boston-based PE major lead a consortium to pump in $1.8 billion in the wake of worsening asset quality and regulatory glare. One of the persons mentioned above said an option being explored involves several smaller investors rallying behind one or two large PE funds in a possible “book building process” that may eventually see a dilution of around 10-20% of the bank.
IndusInd did not respond to ET’s detailed questionnaire.
Blackstone, Apax, TPG and Carlyle declined to comment. Mails to GA, Advent did not generate a response till press time. ET reported on March 17 that the Hinduja family had also asked the Reserve Bank of India that they be allowed to raise their stake in the bank to 26% from the mandated 15%, citing the relaxation granted to Uday Kotak, promoter of Kotak Mahindra Bank, recently. The Hinduja brothers have also clarified that they have made full repayment of the 2016 loan to Citibank, releasing 23.8 million pledged shares, or 3.43% of current paid-up capital. Even though the bank is seeking third-party validation from some of the best names in the business, experts believe it will be a tough trade. “In such testing times, no investor will give passive capital but would seek downside protection, something that RBI and Sebi does not allow for banks.
Additionally, there has also been a change of management in the bank, said a person directly involved, on conditions of anonymity as the talks are in private domain.
“PE investors may have the fire power with them to write a cheque, having raised record levels of capital globally but they will be cautious.
They will seek exhaustive diligence to see the real stress on liabilities, the loan book, the wholesale bank’s exposure.” IndusInd shares have fallen over 69% in one month and 77% since the beginning of the year.