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Foreign scaffolding on HDFC castle

Mumbai, June 1: Is Housing Development Finance Corporation (HDFC) a foreign company' It would appear as much, if one looks at the fact that foreign investors are sitting pretty with 74 per cent of its equity.

The home-loan major has come a long way since the days when International Finance Corporation, ICICI and Aga Khan set it up with a holding of 5 per cent each.

All three sold their way out over a period of time. So have a large section of small investors, who controlled almost 85 per cent of the equity in October 1977, the year when HDFC was incorporated as a company. They are now in possession of only 15 per cent.

The management is decidedly Indian, but analysts say this the first company from the financial services industry to enlist such an overwhelming majority of foreign shareholders.

Even Infosys Technologies, the darling of overseas investors, is 43.45 per cent foreign owned.

“Foreign institutional investors (FIIs) would have bought more equity had it not been for 74 per cent limit clamped by the government. The company is perceived to be professionally run, well managed and transparent, with terrific brand equity. What’s more, it’s operating in a sector just opening up,” an analyst said.

Foreign funds have cornered almost 52 per cent of the equity; foreign direct investment adds up to another 22 per cent. The foreign direct investment has come from Standard Life, the strategic partner in HDFC’s insurance and asset-management subsidiaries.

Foreign investors are betting on the immense potential of the housing finance business in the country.

Mortgages contribute only 1 per cent of India’s gross domestic product against 51 per cent in the US.

Analysts say spreads — the difference between the rate charged and the cost of raising funds — at HDFC have increased even as interest rates moved south.

It is now at a healthy 2.15 per cent, was 1.80 per cent in the financial year 2000-01 and 1.96 per cent in 2001-02.

A strong brand, a high-quality loan portfolio and a customer base of over two million have given foreign investors enough reasons to pay a premium on shares of HDFC. And, the returns have been exemplary.

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