GIC, KKR, OMERS Lead $1.75B Investment in India’s Largest Mortgage Lender

Singapore’s sovereign wealth fund GIC is joining US private equity pioneer KKR and other global investors to take a $1.75 billion stake in India’s largest mortgage lender, as the South Asian nation gears up for a housing boom.

Mumbai-based Housing Development Finance Corp (HDFC) said it will raise about 111 billion rupees ($1.75 billion) from a preferential share sale to a group of investors, including GIC and KKR as well as India’s Premji Invest, France’s Carmignac Group, and Canadian pension manager OMERS Administration Corporation.

Announced over the weekend, the allotment of shares represents 3.9 percent of the company’s enhanced equity share capital following the issue. The news prompted HDFC’s shares to surge more than 6.7 percent, boosting its market cap past the 3 trillion rupee ($47.3 billion) mark for the first time.

HDFC Leverages $1.3T Indian Housing Boom

India’s housing sector is booming on the back of rising incomes and a government drive to provide homes for over a billion people. According to estimates by investment bank CLSA India, the country will need 60 million new homes by 2024, which is expected to spur investments of up to $1.3 trillion.

The housing finance sector has considerable room to grow, given that the country’s mortgage penetration rate stands at just nine percent of nominal GDP, compared to 32 percent in Malaysia and 68 percent in the US, according to an HDFC presentation cited by Bloomberg.

HDFC, which obtained board approval last month to raise up to 130 billion rupees, said the key objective of the fundraising is to maintain the company’s approximately 21 percent stake in HDFC Bank through investment in a preferential share issue.

The statement indicates that HDFC may also need capital for opportunities in the health insurance sector and the acquisition of distressed real estate assets. Capital may also be used for funds the company has set up to invest in debt for affordable housing projects.

Waverly Pte, a GIC affiliate, will purchase about 30.1 million shares through the deal, while OMERS Administration Corp will buy 10 million shares. Siverview Investments Pte, the KKR affiliate, will buy about 9.3 million shares, according to the statement by HDFC.

Chaired by Deepak Parekh, the pioneering mortgage lender has financed a cumulative 6.1 million units and has extended gross loans totalling 3.6 trillion rupees ($56.7 billion).

Global Investors Join the South Asian Fray

Through the HDFC deal, a roster of global investors are building on an existing presence in India. GIC, which is one of the world’s largest sovereign funds with an estimated $369 billion of assets under management, has emerged along with Blackstone Group as one of the leaders of India’s inbound real estate investment wave.

Last August, the Singaporean state fund purchased a roughly $1.9 billion stake in a unit of DLF, India’s most valuable real estate developer, adding to a string of residential and business park investments in the country.

New York-based KKR, which at the last count had about $153 billion of assets under management worldwide, has invested at least $9 billion in India since 2009, including acquiring a $46 million residential project in Mumbai. KKR closed on its Asian Fund III last June after raising $9.3 billion, representing the largest-ever private equity vehicle dedicated to investment in Asia Pacific.

The Ontario Municipal Employees Retirement System (OMERS) manages pension investments for municipal employees of the Canadian province, with over $85 billion in net assets. The firm has also jumped into the Indian property sector by agreeing to take a stake in Fairfax India Holdings Corporation’s $350 million private offering in December 2016.

Set up by Canadian investor Prem Watsa, Fairfax India invests in private equity, public equity and debt investments in the country.