As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41% of HDFC Bank
Mumbai:
India’s most valuable lender HDFC Bank on Monday agreed to take over the country’s largest mortgage lender HDFC Ltd in a USD 40 billion deal, creating a financial services titan in the largest transaction in the nation’s corporate history.
As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41% of HDFC Bank.
Announcing the merger Keki M. Mistry, vice chairman and CEO, HDFC Ltd, said among other things, HDFC bank will be able to cross-sell life and general insurance products to HDFC’s existing customers in a larger way and increase its mortgage finance exposure further after the merger.
The subsidiaries like HDFC Life and HDFC Ergo General Inurance and associates of HDFC Ltd will shift to HDFC Bank, the companies said in a regulatory filing..
HDFC Bank has suggested to the Reserve Bank of India (RBI) that post merger either it be allowed to continue with HDFC’s 47.82 per cent stake in HDFC Life or buy additional stake in the company from the market, said Sashidhar Jagdishan, MD & CEO, HDFC Bank said.
The RBI’s existing regulations allow a bank either hold 30 per cent or 50 per cent stake in a an insurance venture.
Once the deal is effective, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC will own 41 per cent of the bank, the two firms said.
The proposed entity will have a combined asset base of around Rs 18 lakh crore. The merger is expected to be completed by the second or third quarter of FY24, subject to regulatory approvals.
Making the announcement, HDFC Chairman Deepak Parekh said it is a ‘merger of equals’, which will also benefit the economy as a larger balance sheet and capital base will allow a greater flow of credit into various sectors.
The transaction involves the amalgamation of HDFC and its two wholly-owned subsidiaries HDFC Holdings and HDFC Investments with HDFC Bank.
”The merger is a coming together of equals. Our customers will be the biggest beneficiaries,” Parekh told reporters.
Absorbing HDFC Ltd will help HDFC Bank narrow the gap with bigger rival State Bank of India (SBI) and help it expand its home loan portfolio as well as open up the scope for larger loans by building on its 6.8 crore customer base.
The merger of HDFC Bank and HDFC could create the second largest company in India by market capitalisation, leaving behind TCS, the crown jewel of the Tata group.
The HDFC twins now have a combined m-cap of Rs 13.99 lakh crore, exceeding Rs 13.94 lakh crore of TCS. Reliance Industries remains India’s largest company by a huge margin, with its market cap standing at Rs 18 lakh crore.
The merger could improve HDFC Bank’s earnings over the next three to five years, said S&P Global Ratings, solidifying its ranking as the second-largest bank in India, twice the size of number three ICICI Bank Ltd.
”HDFC Bank’s larger balance sheet could enhance its wholesale lending opportunities,” the ratings firm said.
The lender currently is largely retail-focused but the merger will allow it to underwrite larger ticket loans, including those for infrastructure.
Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company.
“A combination of the Corporation and HDFC Bank is entirely complementary to, and enhances the value proposition of HDFC Bank”, HDFC said.
HDFC Bank would benefit from a larger balance sheet and networth which would allow underwriting of larger ticket loans and also enable a greater flow of credit into the Indian economy.
Shares of HDFC and HDFC Bank rallied up to 12 per cent in the morning trade on Monday as investors lapped up the announcement of their proposed merger.
The combined market capitalisation of HDFC Bank and Housing Development Finance Corporation (HDFC) soared to Rs 14.22 lakh crore on Monday after the two companies announced the merger proposal. The HDFC twins’ market capitalisation has surpassed the valuation of Tata Consultancy Services (TCS), which has a market cap of Rs 13.73 lakh crore.
The country’s largest IT firm TCS is currently the second-largest company in terms of market capitalisation. Reliance Industries is India’s largest company with a market capitalisation of around Rs 18 lakh crore.
In the first hour of trading, the scrip of HDFC skyrocketed 12 per cent to Rs 2,754.60 on the BSE and the market valuation rose to Rs 5,02,017.47 crore. It had opened at Rs 2,550-level on the bourse.
Similar trends were seen on the NSE also, where the stock climbed over 12 per cent to Rs 2,754.70.
In tandem, the shares of HDFC Bank surged over 9 per cent to Rs 1,647.55 points after opening at Rs 1562.30 points on the BSE. The leading lender’s market capitalisation stood at Rs 9,13,905.15 crore on the bourse.
On the NSE too, the bank’s shares were up nearly 10 per cent at Rs 1,650.85 points.
Ahead of opening of the markets on Monday, HDFC, the country’s largest housing finance company, announced that it will merge with leading private sector lender HDFC Bank.
With the HDFC twins soaring, the 30-share Sensex climbed and crossed the 60,000-level. The benchmark index was up nearly 2 per cent or 1,177 points at 60,453.69 points.