Shares of HDFC rallied as much as 16.5 per cent on the BSE, the most in nearly two decades, data from BSE showed after its board approved the merger with the country's largest private lender HDFC Bank. Meanwhile, HDFC Bank rallied the most since March 25, 2020. Shares in HDFC Bank jumped as much as 14.3 per cent to hit an intraday high of Rs 1,721.85.
At 10:47 am the stocks of HDFC Limited were up 13.2 per cent at Rs 2,775, and the stocks of HDFC Bank were up 11.2 per cent at Rs 1,676.
Upmove in HDFC and HDFC Bank led to over 1,500 points surge in the Sensex and Nifty reclaiming its important psychological level of 18,000 with HDFC Bank and HDFC Limited contributing 1,140 points to this massive rally in the Sensex.
According to HDFC Limited, HDFC Limited’s shareholding in HDFC Bank will be extinguished as per the scheme of amalgamation. Upon the scheme becoming effective, HDFC Bank will be 100 per cent owned by public shareholders and the existing shareholders of HDFC Limited will own a 41 per cent stake in HDFC Bank.
What does this merger mean?
Santosh Meena, Head of Research, Swastika Investmart Ltd said, "HDFC on Monday announced that it will merge with HDFC Bank, with a share merger ratio of 42 shares of HDFC Bank to 25 shares of HDFC. The proposed transaction will enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base. Post the above scheme, HDFC Bank will be 100 percent owned by public shareholders and existing shareholders of HDFC will own 41 percent of HDFC Bank."
What will HDFC gain?
"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," Meena said.
"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," he added.
With the proposed transaction, the subsidiary or associates of HDFC Limited will become subsidiaries or associates of HDFC Bank. 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 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 Limited.
"It is a win-win proposition for both HDFC and HDFC Bank and it will be second largest entity with almost Rs 18 lakh crore of loan portfolio and now HDFC employees can sell bank products and it will reduce cost of funds for them," said AK Prabhakar, head of research at IDBI Capital.
#A look at HDFC Bank share prices
