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HDFC, Standard Life (UK) to strengthen alliance

Dec 3, 1999

According to newspaper reports, Standard Life Assurance Co. (UK) has decided to participate in all ventures of Housing Development Finance Corporation (HDFC), India's largest housing finance company. Standard Life is Europe's biggest mutual insurance company. HDFC (FY99 Total Income Rs 17.5 bn) is the largest housing finance company in India with a 55% market share. HDFC operates 41 offices and has a field force of more than 42,000 commission agents who mobilize retail deposits.

HDFC had earlier entered into an alliance with Standard Life to pick up a 26% stake in its asset management company. HDFC's insurance sector foray is in alliance with the same company. Standard Life, which already has a 5% stake in HDFC, has been given permission by HDFC's board to increase its stake to 15% and also pick up a 5% stake in HDFC Bank. However, the stake will have to be picked up from the secondary markets as the company has refused to issue fresh equity.

An alliance with Standard Life will be critical for the company's insurance and mutual fund ventures. This is mainly due to the fact that the company has historically focussed on housing loans and more recently consumer loans. It thus lacks the experience and know how for these two new ventures. The company however has a wide distribution network and a brand name, the credibility of which is unparalleled in the country. Combined with the know-how provided by its international partner, HDFC would be in a position to get a head start over its other competitors.

In the meantime the company's stock is likely to be in the limelight on the bourses, as Standard Life will have to pick up a 10% from the secondary markets. Another foreign institution, Warburg Pincus, too, is planning to pick up 10% of the company from the secondary markets. This is likely to positively reflect on the company's stock price in the coming days.

Market View:
The stock has always been a favorite of analysts and fund managers as it has an excellent asset quality and a good management. The FIIs have already exhausted their 30% investment limit in the company.

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