HDFC Chairman Deepki Parekh HDFC shareholders will get 42 shares of HDFC Bank for every 25 shares. HDFC’s 26% stake in HDFC Bank will cease to exist as per the terms of the merger. HDFC Bank will be 100% owned by public shareholders, with existing shareholders HDFC Ltd Owns 41%.
According to Refinitiv data, this will mark the largest banking sector M&A globally since April 2007. S&P Global Ratings said the deal would create an entity twice the size of ICICI Bank.
Parekh said, “Change is inevitable, but it is welcome when it is beneficial to all stakeholders. The merger not only makes the combined entity strong enough to counter the competition but also makes the mortgage offering more competitive. ”
Over the years, HDFC Bank has outperformed its parent in terms of valuation as well as asset size. Parekh said, “The proposed merger will benefit the economy in several ways. A larger balance sheet and a larger capital base will allow greater flow of credit into the economy.”
HDFC Bank CEO Shashidhar Jagadeesan said, “The biggest impetus for the deal is to create demand in the housing market as we have very little penetration in this segment.” “HDFC Ltd. is valued at $60 billion. If you take away part of their stake in us, it becomes $40 billion and that’s the value of the deal.”
HDFC Bank shares closed at Rs 9.2 lakh crore, up 10 per cent. HDFC rose 9.3%, taking its market cap to Rs 4.8 lakh crore. The combined entity could become India’s second most valuable company.
Foreign investment may increase
Shashidhar Jagadeesan, CEO, HDFC Bank said, “We have added 730 branches this year. With this announcement, we can scale this up further as it not only helps us in mobilizing deposits, but also in disbursing affordable home loans. Growth happens. The moment we untie it, you can’t stop the engine of growth.”
The proposed transaction will involve the merger of HDFC Investments and HDFC Holdings with the parent mortgage company. Thereafter, HDFC will be merged with its own banking arm, as a result of which all the group companies will become direct subsidiaries of HDFC Bank. Apart from the bank, HDFC is the holding company of HDFC Life, HDFC General Insurance, HDFC Mutual Fund, HDFC Credila and HDFC Venture Capital.
This amalgamation will give more opportunities to foreign investors to invest in HDFC Bank, where the foreign holding was close to the limit. The liquidation of HDFC’s holding will also increase the bank’s earnings per share significantly.
As a result of the announcement of the mega merger, the shares of both HDFC and HDFC Bank rose on the stock exchange. Shares of HDFC closed at 10% higher valuation of the private lender at Rs 9.2 lakh crore, while shares of the housing finance company rose 9.3%, giving it a valuation of Rs 4.9 lakh crore.
There was speculation about a merger between the two entities for more than two decades, especially after the merger of ICICI with ICICI Bank in 2001. The HDFC merger was finalized less than 18 months after its founding CEO Aditya Puri retired and Jagadeesan took over.