As a part of its long-term strategy to divest non-core assets in order to improve overall efficiency, HSBC Holdings plc (HBC) is now planning to sell its stake in two Indian private sectors banks - Axis Bank and YES Bank. The company, selling its holdings at 3-5% discount to closing prices on June 26, is expected to raise about $429.5 million (INR24.5 billion) from this divestiture.

HSBC, through its Mauritius subsidiary - HSBC Bank Mauritius Ltd A/C HSBC IRIS Investments Mauritius Ltd - would be offloading its entire 4.75% stake or 19.6 million shares of Axis Bank in a price band of INR951–INR971 per share. The company will be able to raise approximately $326–$333 million (INR18.6–INR19.0 billion) from this deal.

Moreover, HSBC is selling its full 4.76% or 16.8 million shares of YES Bank through the same subsidiary. The company would be divesting the stake in a price band of INR318–INR325 per share. Hence, this transaction will likely fetch nearly $94–$96 million (INR5.34–INR5.46 billion).

The Goldman Sachs Group, Inc. (GS) and HSBC are the joint book runners for the transaction. Additionally, HSBC has another 4.4% interest in Axis Bank through its HSBC Mauritius Ltd A/C Cinnamon Capital Ltd, which is not being sold in the present deal.

Similar Divestitures

Over the last few months, many international banks and institutional investors have been paring with their holdings in Indian companies. The main reason for offloading the stake is to strengthen the balance sheet in the present sluggish economic environment and meet stringent regulations. In February, Citigroup Inc. (C) offloaded its entire stake in Housing Development Finance Corporation Ltd. by selling 145.3 million shares for $1.9 billion.

Likewise, Warburg Pincus, a leading private equity firm, divested its holdings in Kotak Mahindra Bank in two separate deals in February and March. Also in February, Singapore state investor Temasek Holdings offloaded 1.38% interest in ICICI Bank Ltd. (IBN) raising nearly $303 million. Further in April, Netherlands-based Rabobank sold about 3.4% stake in YES Bank through an open market transactions.

Conclusion

HSBC is suffering from a weak revenue growth in its mature markets due to the ongoing low interest rates and regulatory restrictions. We believe that the latest move by the company would enable it implement its long-term strategy of improving profitability.

HSBC currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we maintain a long-term ‘Neutral’ recommendation on the stock.

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