Everything you need to know
On the morning of Monday, April 4, 2022, the largest housing finance company, HDFC Limited, announced the merger with the largest private sector bank in India, HDFC Bank. Let’s discuss the details of this merger and whether this decision will create any synergy benefits for the shareholders. Let’s discuss this in detail in this article as we move ahead.
HDFC Limited-HDFC Bank Merger:
- Housing Development Finance Corporation (HDFC) Limited is India’s largest housing finance company with one of the best product offerings. The company is the promoter group of HDFC Bank.
- HDFC Limited on Monday, April 4, 2022, announced the merger of the company with its subsidiary HDFC Bank, the largest private sector bank, to create a large balance sheet and net worth that would allow a greater flow of credit into the economy. The Board expects that this merger will also enable the underwriting of larger ticket loans, including infrastructure loans.
- HDFC Bank has a presence in more than 3,000 cities and towns through its 6,342 branches, with about 50% of these branches in semi-urban and rural geographies in the country. Leveraging this distribution might, the proposed transaction would broaden the home loan offering, synonymous with the national objective of the Pradhan Mantri Awas Yojana that intends to provide housing for all.
What Will Shareholders of HDFC Limited Get?
- Upon the scheme becoming effective, the subsidiaries and associates of HDFC Limited will become subsidiaries and associates of HDFC Bank.
- Shareholders of HDFC Limited as of the record date will receive 42 HDFC Bank shares (each with a face value of Rs.1) in exchange for 25 HDFC Limited shares (each with a face value of Rs.2), and the equity share(s) held by HDFC Limited in HDFC Bank will be extinguished in accordance with the Scheme.
- As a result of this, upon the Scheme becoming effective, HDFC Bank will be owned by public shareholders and existing shareholders of HDFC Limited will own 41% of HDFC Bank.
- As on the date of conversion, regarding the shareholders who do not have 25 shares of HDFC Ltd, either you will have to buy the differential shares so that the total shares become 25 or you will be paid out in cash for the shares you hold as on the date of the merger. There is no official communication regarding the shareholders holding less than 25 shares.
- Suppose you have 20 shares as of today that is on 4th April 2022 then you have time to buy 5 shares and get yourself eligible for the merger or you will be paid out in cash for the 20 shares you hold.
- The merger will take approx. 18 months to get completed, so there are almost 18 months to get the minimum shareholding criteria.
- The record date for the merger is yet to be announced as the merger will be completed post the approval from Creditors, shareholders, and Regulatory Approvals from the Reserve Bank of India, Securities and Exchange Board of India, IRDAI, Competition Commission of India and Stock Exchanges.
- So if anyone who wants to be a part of this merger can still buy shares now as well. One can buy the shares till the Record date for the merger is announced.
- The combined entity will bring together the complementary strengths of the two organizations, enabling a rewarding customer relationship.
- After the merger, HDFC Bank’s customers will be offered mortgages as a core product in a seamless manner. HDFC Bank will also leverage the long-term mortgage relationship to offer varied credit and deposit products enabled by better insights throughout the customer life-cycle. This will result in an enhanced value proposition and customer experience for all customers of the combined entity.
- The boards of HDFC Ltd. and HDFC Bank believe that the merger will create long-term value for all stakeholders, including customers, employees, and shareholders of both entities. The amalgamation of the two entities will provide further impetus to the government’s vision of “housing for all.”
- Transaction completion is subject to shareholders, creditors, and regulatory approvals, including from RBI, IRDAI, CCI, SEBI, and the Stock Exchange.
- This merger is expected to be completed within 18 months, subject to the completion of regulatory approvals and other customary closing conditions.
What Should Shareholders Do?
This merger decision between HDFC Bank and HDFC Limited could prove to be a win-win situation for all the stakeholders amid rising regulatory developments and reforms. This merger seems to have short-term as well as long-term beneficial conditions for all the shareholders as well. One should not take an investment decision based on this news alone, but should follow due diligence.