Hdfc, Hdfc Bank will merge; Ratio 25 Hdfc Shares For 42 Hdfc Bank Shares

The Board of Directors of Housing Development Finance Corporation (HDFC), India’s leading housing finance company with total assets under management of Rs 5.26 trillion and a market capitalization of Rs 4.44 trillion, has approved the merger of the company and its subsidiaries with HDFC Bank, the country’s first bank. private sector bank with a market capitalization of Rs 8.35 trillion. HDFC Investments and HDFC Holdings are the two wholly owned subsidiaries of HDFC.

Participation

HDFC said the board had approved a composite merger plan for the merger. “The shares held by HDFC and HDFC Bank will be extinguished in accordance with the plan. Accordingly, upon entry into force of the program, HDFC Bank will be 100% owned by public shareholders, and existing HDFC shareholders will own approximately 41% of HDFC Bank,” said Keki Mistry, Vice President and CEO of HDFC.

Movement of stock

Shortly after the announcement, as the market opened, HDFC shares gained 10% while HDFC Bank rose 8.3%.

“Treat through regulatory changes”

“This is a merger of equals,” HDFC chairman Deepak Parekh said. “Regulatory changes over the past three years have reduced barriers to a merger. The NPA classification is now the same for NBFCs/HFCs and banks. The top layer of NBFCs will have stricter regulations similar to banks. These measures significantly reduced regulatory arbitrage for the merger.”

Share exchange

The share exchange ratio will be 42 shares, credited as fully paid, with a par value of Rs 1 each of HDFC Bank for 25 fully paid shares with a par value of Rs 2 each of HDFC.

Transaction Timeline

Completion of the transaction – which is expected to be completed by the third or fourth quarter of FY24 – is subject to shareholders, creditors and regulatory approvals including RBI, IRDAI, ICC , SEBI and stock exchanges.

Sashidhar Jagdishan, MD and CEO of HDFC Bank, said, “This is a historic moment. It still hasn’t been mainstreamed, but the proof of the pudding would be how we can execute, which is our forte, over the next three years, and we are confident with all of the remarks that Keki Mistry has mentioned, I believe that we can now meet the housing demand of many of our clients in a very transparent and efficient way.”

What facilitated the transaction?

At a press conference, Atanu Chakraborty, chairman of HDFC Bank, said that this transaction could not have come at a better time, after two years of the pandemic. “NBFC’s regulatory trajectory moving closer to banks facilitates this transaction. The bank has developed its portfolio well over the years; affordable housing also qualifies for the PSL, which makes the merger attractive. The bank can now leverage of its entire branch network; offering a bouquet of services to HDFC customers,” said Chakraborty.

Integration into the MSCI index?

The merger could lead to the inclusion of HDFC Bank in the MSCI index. Currently, the lender is not included in the index as HDFC’s stake in the lender is considered an FII.

“Foreign ownership will drop to 65-67% after the transaction,” Mistry said, adding that there could be a 7-8% increase in foreign ownership in the combined entity after the merger.

The current combined weighting of the two on Nifty is 15%. After the merger, it will become Nifty’s highest weighted stock.

Head of the new entity

Announcing the merger, Mistry said: “The CEO will continue to be the CEO of the bank. I’m 67 and a half and this merger will probably take another year and a half. By then I’ll be 69. and the retirement age for bank employees is 70. As I mentioned, every HDFC employee, including all of our senior managers, will now hold positions within the bank.

What will change?

After the merger, HDFC Bank will have an economic interest in HDFC Life. HDFC and HDFC Bank will continue to operate independently until the date of merger, and the position of each HDFC employee will be retained. All HDFC branches will be retained and may be converted into bank branches after the merger.

Reactions to the merger

Rajnish Kumar, former chairman of SBI, reacting to the announcement of the merger, said there would be a positive impact when it comes to net worth. However, he said the benefit may not be significant as HDFC Bank’s distribution network was used for origination of home loans.

“In terms of business creation, there may not be a big impact, but the overall efficiency of resource allocation and use…So the combined entity is a win” , Kumar said.

According to Ajay Srivastava, CEO of Dimensions Corporate Finance Services, the direction of the stock will remain, but much more will depend on the direction of the organization.

“There is Keki Mistry on one side, Sashidhar Jagdishan on the other. So I think you have to understand what will happen to this company organizationally because that will dictate the fortunes,” he said. .

“If you look at HDFC Bank’s cost of funds compared to HDFC, I think this merger will hold up better than HDFC. If you look at HDFC Bank, their mortgage portfolio isn’t that big, and if you’ve listened to the In recent conference calls they have talked about growing their mortgage portfolio in a very significant way, and in many ways this vertical merger helps both entities,” said Rahul Arora, CEO of Nirmal Bang Institutional Equities.

Sallie R. Loera