Title: HDB Financial Services IPO Priced Below Grey Market Premium: What's the Story?
HDB Financial's Initial Public Offering Priced Below Grey Market Valuation
The initial public offering (IPO) by HDB Financial Services, an arm of HDFC Bank, has priced at a significant discount to grey market rates. Initially trading at a staggering Rs 1,550 in grey markets, the new price range is set between Rs 700-Rs 740 per share.
"The grey market price doesn't reflect the input from serious investors," Jibi Jacob, MD and head of ECM at Jefferies India, explained. This IPO, expected to net HDFC Bank Rs 9,373 crore with a 25% stake sale, is anticipated to be the largest public offering in India's NBFC sector as of now.
The pricing was determined after extensive consultation with numerous investors, said the bankers. Sonia Dasgupta, CEO of investment banking at JM Financial, believes that this pricing lends more confidence to investors.
While grey markets are regular, unregulated, and not illegal, they represent an investor sentiment indicator for unlisted companies. The hype in these markets doesn't always match the fundamentals, according to an institutional investor.
The Draft Red Herring Prospectus (DRHP) filed by the company reveals that the offering consists of a fresh equity issuance of Rs 2,500 crore and an offer for sale (OFS) of Rs 10,000 crore. HDFC Bank will sell around 135.13 million equity shares.
Grey markets are known to be a mixture of market sentiment and risk appetite. Amit Thawani, managing director and head of Investment Banking at Nomura India, notes that grey market prices aren't a true benchmark for IPO prices, considering they are a result of the same set of investors selling to each other in an unregulated space.
The pricing discount could stem from regulatory compliance demands, prudent risk management, or investor caution about competition within the NBFC sector. The pricing strategy aims to ensure full subscription, smooth listing, and attract a broad base of investors.
Compared to older NBFC IPOs, the HDB Financial IPO stands out due to its regulatory mandate, large size, and cautious pricing method. While previous NBFC IPOs saw aggressive pricing, the HDB Financial IPO illustrates a more conservative approach to meet the regulatory requirements and manage risks associated with a large issue size.
- Investors have expressed concerns about the grey market price of HDB Financial Services not accurately reflecting their input, as explained by Jibi Jacob, MD and head of ECM at Jefferies India.
- Sonia Dasgupta, CEO of investment banking at JM Financial, believes that the cautious pricing strategy of the HDB Financial Services IPO lends more confidence to investors.
- Grey markets, while offering insights into investor sentiment for unlisted companies, do not always align with a company's fundamentals, according to an institutional investor.
- Amit Thawani, managing director and head of Investment Banking at Nomura India, points out that grey market prices are a result of the same set of investors selling to each other in an unregulated space and are not a true benchmark for IPO prices.
