HDFC in final stage of selling 4 large, stressed accounts before the merger

Ahead of the HDFC-HDFC Bank merger, the mortgage financier is trying to sell four large, stressed accounts, one of which is the Subhash Chandra-promoted Siti Networks

Ahead of the merger with its subsidiary bank, mortgage financier HDFC Ltd is in the final stages of selling four large distressed accounts to Assets Care and Reconstruction Enterprise (ACRE), a media report said on Thursday.

 

The four distressed accounts include Subhash Chandra-promoted Siti Networks.

 

According to an Economic Times report, ACRE has given Rs 270 crore upfront to acquire HDFC's Rs 577-crore portfolio of the four corporate accounts. Its offer equates to a recovery of 47 per cent for India's biggest home financier.

 

BSE-listed Siti Networks is the biggest of the four accounts in this portfolio, at Rs 198.5 crore. The report reports that the other three accounts are MEP Infrastructure Developers, with a principal loan of Rs 125 crore, Hotel Horizon at Rs 163 crore, and Sterling Urban Development at Rs 90 crore.

 

ACRE's offer has triggered a Swiss Challenge auction wherein ACRE will have the first right to match any counteroffer HDFC receives for the distressed loan portfolio.

 

HDFC's counteroffer will have to be at a mark-up of 10 per cent over the base price of Rs 270 crore. Thus, the counteroffer has to be Rs 297 crore or above.

 

Siti Networks, a digital cable television service provider, and MEP Infrastructure are the two attractive accounts, ET reported.

 

In April, HDFC and HDFC Bank announced plans for an all-stock merger deal, for which all the regulatory approvals were expected in 15-18 months.

 

HDFC has a gross loan book of Rs 5.68 trillion, of which Rs 1.3 trillion is a corporate loan book.

 

Banks must maintain a CRR of 4.5 per cent and an SLR of 18 per cent. In addition, commercial banks have to extend 40 per cent of their loans to sectors which are classified as priority sectors. And within the priority sector, 18 per cent of the adjusted net bank credit (of the previous fiscal) needs to be extended to the farm sector.

 

For HDFC Bank, meeting all these regulatory requirements from day one of the merger, given the loan book size of HDFC, would be highly challenging. This is the reason the lender has asked for a glide path to fulfilling the regulatory obligation.