The board of directors of HDFC Bank On Wednesday it rejected a $2 billion buyout proposal for a 20% stake in non-banking subsidiary HDB Financial Services by Japanese financial group Mitsubishi UFJ Financial Group (MUFG), the world’s second-largest bank holding company. Instead, the board approved a plan to proceed with HDB’s listing to comply with Reserve Bank of India (RBI) regulations, it said. HDFC Bank executives spoke on condition of anonymity because the matter is confidential.
The decision to scrap the plan will cause consternation in Japan, people familiar with the matter said. The Japanese government had recently conveyed its support for the deal to the Indian Prime Minister’s Office, External Affairs Minister S. Jaishankar and even Finance Ministry officials.
‘Top brass are divided over the plan’
This has been seen as a move to further cement economic and strategic ties between two key members of the Quad, or Quadrilateral Security Dialogue (QSD) bloc. Japan is expected to clearly express its disappointment to the Indian government over the late change of stance, the people cited above said.
The move also reflected a split within the private lender’s senior leadership, they said.
MUFG’s pre-IPO bet had valued the NBFC at $9 billion and would have unlocked value for parent HDFC Bank, which has been grappling with synergy issues following the merger with home lending parent HDFC Ltd. Apart from business synergies, it would have also set a valuation benchmark for the shadow bank. The Japanese financial giant was also set to become a co-promoter of HDB along with HDFC Bank. For MUFG, which has owned a fifth of Wall Street investment bank Morgan Stanley since 2008, a tie-up with HDB would have given it access to one of the fastest-growing economies. Slow growth in Japan has prompted some of its largest lenders and financial services groups to look for inorganic growth opportunities in Asia.
HDFC Bank owns 94.7% of the shadow bank and employees own 5.3% in the form of stock options.
MUFG and HDFC Bank did not respond to queries as of the time of publishing this article. HDB, which has been categorised as one of the 16 “top-tier” non-banking financial companies (NBFCs) by the central bank that are subject to heightened regulatory scrutiny, has been preparing for a much-awaited initial public offering (IPO). This is scheduled for the last quarter of calendar year 2024 or the first quarter of 2025 and will make it the first subsidiary of HDFC to list after the merger. This is in line with RBI regulations that require it to list by September 2025.
Prior to the merger, HDFC Asset Management Co and HDFC Life, owned by the former HDFC Ltd, were the last subsidiaries to go public. In July, the Indian lender’s board had approved a preliminary plan to list HDB publicly. The firm had originally planned its stock market debut nearly five years ago, but then tried unsuccessfully to attract a strategic investor and had commissioned Morgan Stanley to help it find a partner.
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