HUDCO OFS 2023: Govt stake sale, ₹79 floor, shares -9%

What triggered the fall in HUDCO shares

HUDCO shares came under sharp pressure after the Union government announced an Offer For Sale (OFS) to pare its holding in the state-run housing finance company. In Wednesday’s intraday trade, the stock fell about 9% and traded around the ₹81-₹82 levels on the BSE. The drop followed the government’s decision to sell up to 7% stake, with the OFS floor price set at ₹79 per share. The floor price implied a discount of about 12% to Tuesday’s close of ₹89.9 per share.

The sell-off was also accompanied by heavy activity ahead of the session. Bloomberg data cited at least 12.1 lakh HUDCO shares changing hands in a pre-market large trade. Investors typically factor in near-term supply when a large promoter sale hits the market, which can pressure prices even if longer-term fundamentals remain unchanged.

OFS structure: base offer and green shoe option

The OFS is structured with a base offer and an oversubscription, or green shoe, option. Under the base offer, the government will offload 7,00,66,500 equity shares, representing 3.5% of HUDCO’s total paid-up equity share capital. If demand is strong, the seller has the option to sell an additional 7,00,66,500 shares, another 3.5% of paid-up equity.

If the oversubscription option is exercised, the total sale size becomes 14,01,33,000 shares, representing 7% of HUDCO’s paid-up equity. The regulatory filing also noted that the seller would intimate stock exchanges about its intention to exercise the oversubscription option after trading hours, on or before 5 pm on October 18, 2023.

Timeline: who can bid and when

The OFS was scheduled over two trading days, October 18 (T day) and October 19 (T+1 day). On T day, bids were open only for non-retail investors through a separate stock exchange window during market hours, from 9:15 am to 3:30 pm (IST). On T+1 day, retail investors could bid, and non-retail investors who chose to carry forward unallotted bids could also participate.

The OFS follows standard rules that allow non-retail investors, who opted to carry forward their unallotted bids from T day, to amend those bids on T+1 day. However, the filing also stated that only retail investors would be permitted to place and modify bids on T+1 day.

Pricing details and discount to market

The floor price for the OFS was set at ₹79 per equity share. This was reported as a discount of about 12% (12.17% in one update) to Tuesday’s closing price of ₹89.9 per share. On the day the OFS began, HUDCO shares opened with a gap down at ₹83.10 and fell to an intraday low of ₹81.37. Around 10:22 am, the stock was quoted about 8.9% lower at ₹81.9, while another update put the intraday fall near 9.5% to around ₹81.22.

The company also indicated that no retail discount would apply for this OFS. That is a key detail because retail discounts are sometimes used to improve participation in stake sales, but it was not part of this offer’s terms.

Demand signals: subscription and exercise of green shoe

Subscription data from the non-retail day suggested strong institutional demand. The OFS was reported to be subscribed 2.1 times (210.47%) on its first day, which was reserved for non-retail investors. Following that response, the government decided to exercise the green shoe option for an additional 3.5% stake sale.

With the green shoe exercised, the total offer size moved to over 14 crore equity shares, representing 7% of the total paid-up share capital. HUDCO also indicated that 1.4 crore shares would be reserved for retail investors, subject to receipt of valid bids, as part of the offer on October 19.

Government holding and the minimum public shareholding requirement

At the end of the September quarter, the central government held an 81.81% stake in HUDCO, according to the updates in the article text. The stake sale was positioned as a step toward meeting minimum public shareholding norms. Under those norms, listed companies must maintain a public float of at least 25%.

The OFS documents described the seller as the President of India acting through the Ministry of Housing and Urban Affairs. The divestment involves equity shares with a face value of ₹10 each.

Employee portion and allocation rules

The government stated that equity shares equivalent to up to 5% of the offer size may be offered to eligible and willing HUDCO employees. The notification laid out limits for the employee category: employees would be eligible for shares up to ₹5,00,000. The allotment to an employee would be up to ₹2,00,000, and if the employee portion is undersubscribed, the allotment per employee could rise, but would not exceed ₹5,00,000.

The filing also stated that no single bidder, other than mutual funds and insurance companies, would be allocated more than 25% of the offer shares. Allocations would be made at or above the floor price on a price-priority basis at multiple clearing prices, except retail investors, who would have the option to bid at the cut-off price.

Market context: price action and technical signals mentioned

While the stake sale drove a sharp one-day fall, the stock’s broader trend over the year remained positive in the data provided. The article text reported HUDCO was up over 50% on a year-to-date basis and had rallied nearly 130% over the past one year. Over the past three months, the stock rose 52.5% on the BSE, and over six months it was reported to have gained 79% in one update and risen 98% from around ₹45.46 in another.

Technical indicators cited suggested HUDCO was trading above its 50-day, 100-day, 150-day, and 200-day simple moving averages, while remaining below its 5-day, 10-day, 20-day, and 30-day SMAs. The stock was also reported to be about 15% below its 52-week high of ₹95.89, recorded on October 4, 2023.

Key facts table

Why this OFS matters for investors

For investors, the key near-term variable is the size and pricing of supply entering the market. The ₹79 floor price created an immediate reference point for secondary market trading, especially since it was set at a double-digit discount to the previous close. The fall in HUDCO’s share price reflected that recalibration.

The stake sale also ties into regulatory compliance around minimum public shareholding. With the government holding 81.81%, any sale that increases free float is relevant for index investors and liquidity. The updates also mentioned the government expected the 7% stake sale to fetch around ₹1,100 crore, providing an implied sense of the transaction’s scale.

Past comparison mentioned in the updates

The article text also referred to a similar divestment two years earlier, when the government divested up to 8% stake in HUDCO at a floor price of ₹45 per share. That earlier OFS included a base offering of 5% and an oversubscription option of an additional 2.5%. The comparison highlights how HUDCO’s market price and divestment terms have shifted over time.

What to watch next

The OFS process was designed to conclude with retail participation on October 19, alongside any carried-forward non-retail bids. Investors will track final demand, the clearing price(s), and how much of the oversubscription option is absorbed. The article text also named IDBI Capital Markets and SBICAP Securities as brokers for the offer, and market participants are likely to watch post-OFS trading for signs of supply overhang easing.