India’s largest private lender HDFC Bank will merge with housing finance firm HDFC Ltd, the companies said on Monday. The subsidiaries and associates of HDFC Ltd will shift to HDFC Bank, the companies said in a regulatory filing. “The merger—subject to regulatory approval–is coming together of equals. The customer will be the biggest gainer,” said Keki Mistry, vice chairman and chief executive officer of HDFC, in an investor call.
Dr VK Vijayakumar, Cheif Investment Strategist at Geojit Financial Services, said: “The merger of HDFC with HDFC Bank is an unprecedented mega merger which will benefit all stakeholders. The shareholders of both entities stand to benefit substantially as already reflected by the sharp up moves in their stock prices. The merged entity will gain from the synergies of the merger. The mortgage business will gain from the low-cost funds of the bank and the bank will gain from HDFC’s competence in mortgage lending. The Indian economy will benefit from larger investment by the merged entity in large infra projects. India will have a large global bank.”
Share Holding Arrangement
The share exchange ratio for the amalgamation of HDFC with and into HDFC Bank will be 42 equity shares, credited as fully paid up, of the face value of Re 1 each of HDFC Bank for every 25 fully paid-up equity shares of the face value of Rs 2 of HDFC, the bank said.
Share Exchange Ratio
Upon the Scheme becoming effective, HDFC Bank will issue equity shares (in the share exchange ratio as mentioned above) to the shareholders of HDFC Limited as on the record date. The equity share(s) held by HDFC Limited in HDFC Bank will be extinguished as per the Scheme.
Shareholding Pattern
Upon the Scheme becoming effective, HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC Limited will own 41 per cent of HDFC Bank.
The HDFC-HDFC Bank merger is expected to be completed by the second or third quarter of of FY24. HDFC said the Proposed Transaction shall enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base.
Mortgages as Core Product
Post the combination, HDFC Bank’s customers will be offered mortgages as a core product in a seamless manner. HDFC Bank will also leverage the long tenor mortgage relationship to offer varied credit and deposit products enabled through better insights through-out the customer life-cycle.
Shares to Rise Further
HDFC Bank share price rose 13 per cent on announcement of a transformational merger with HDFC Ltd. “This merger is the biggest surprise move to markets and is a win-win call for all stakeholders. This merger will create biggest financial services conglomerate to compete globally,” said Prasanth Tapse, Vice president (Research) Mehta Equities.
What HDFC Ltd. Gains?
Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “For HDFC Ltd. the biggest gain will be access to well-diversified low-cost funding and a huge customer base of HDFC Bank Ltd. Earlier NBFC’S used to enjoy regulatory arbitrage vis-à-vis banks, but the regulatory authorities have harmonized the same, thus making this merger necessary and creating a competitive advantage over its peers.”
The proposed merger will enable HDFC Bank to build its housing loan portfolio. The housing loan market is at the cusp of a strong up-cycle along with tailwinds for the real estate sector, and it provides a steady secured asset class with very attractive risk-adjusted returns. This will increase the balance sheet size of the merged entity enabling it to underwrite large ticket size loans.
Overall this is a marriage made in heaven, creating increased scale, comprehensive product offering, balance sheet resiliency and the ability to drive synergies across revenue opportunities, operating efficiencies and underwriting efficiencies, hence benefiting stakeholders of both the companies, Meena said.
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