In a bid to create a financial behemoth, HDFC Bank on Monday has announced the merger of mortgage lender HDFC with the HDFC Bank. In a regulatory filing, HDFC Bank said that its board has approved the amalgamation of HDFC Investments and HDFC Holdings with HDFC Limited and HDFC Limited into the HDFC Bank. This merger is likely to create to the third largest entity in India in terms of market capitalisation.
HDFC Limited, India’s largest housing finance company has a market capitalisation of Rs 4.44 lakh crore. HDFC Bank, on the other hand, commands a market capitalisation of Rs 8.35 lakh crore, as of April 1. So, based on the market valuation of these two entities, the merged company will have a market capitalisation of Rs 12.8 lakh crore, as of April 1. HDFC said that it will hold a 41 per cent stake in the merged entity. Post merger, the HDFC Bank will be 100 per cent owned by public shareholders.
“The share exchange ratio has been determined based on joint valuation report issued by the independent valuers, supported by a fairness opinion by a SEBI registered merchant banker,” the bank said.
“This is a merger of equals. Over the last few years, various regulations for banks and NBFCs have been harmonised, thereby enabling the potential merger,” Deepak Parekh, chairman of HDFC said.
“From the valuation perspective the HDFC twins are even now only attractively priced in a highly valued market. FPI’s strategy of sustained selling in HDFC twins have been proved to a short-sighted decision,” said VK Vijayakumar, cheif investment strategist at Geojit Financial Services.
The share exchange ratio for the amalgamation of HDFC Limited with and into HDFC Bank shall be 42 equity shares (credited as fully paid up) of face value of Re 1 (Rupee One) each of HDFC Bank for every 25 fully paid-up equity shares of face value of Rs 2 (Rupee Two) of HDFC Limited, the bank said.
“The merger will be more beneficial to HDFC Ltd. since it has a lower profitable business and with HDFC Bank it can increase its product penetration. However, the business-related synergies could have been driven without the merger also. The bet by the management is clear that the increased balance sheet size of the entity will enable it to increase its competitiveness and create shareholder value,” said Abhay Agarwal, founder and fund manager, Piper Serica, SEBI registered portfolio management service provider.
“This is India’s largest and most transformational mergers in the Indian financial services sector. With this merger HDFC bank gets an unparalleled advantage through the mortgage portfolio providing it a quantum leap in distribution to semi urban and rural areas with a huge opportunity to cross sell bank products to a very very sticky client base. The combined entity will be able to extract substantial synergy benefits which abode well for all stakeholders and shareholder. We are already seeing that in the market reaction to this unprecedented announcement today,” said Samir Bahl, CEO, investment banking at Anand Rathi Advisors.
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