On Monday, HDFC Bank and HDFC Limited declared their intention to merge, paving the way for one of Indiaʹs largest financial transactions. The announcement of the merger resulted in a substantial increase in the two companiesʹ share values, which were up over 7% in early trading hours on Monday. According to a filing with the stock exchanges by the HDFC Bank, the transformational merger will result in HDFC acquiring a 41% stake in the HDFC Bank.
HDFC Limited is Indiaʹs one of the oldest and one of the largest housing finance companies with Rs 5.26 trillion in assets under management (AUM) and it has a market capitalization of Rs 4.44 trillion, which is going to merge with HDFC Bank which is Indiaʹs largest private sector bank by assets having a market capitalization of about Rs 8.35 trillion, as per the transaction structure.
The board of both HDFC Limited and HDFC Bank feel that the merger will benefit all stakeholders, including customers, workers, and shareholders of both companies, in the long run. The merger of the two companies will provide the governmentʹs aim of "Housing for All" a boost, according to HDFC.
Deepak Parekh, Chairman of HDFC Ltd, declared, "This is a merger of equals." The adoption of RERA, the housing sectorʹs infrastructure status, and government efforts such as affordable housing for everyone, among other things, are expected to propel the housing finance industry forward in leaps and bounds.
Various legislation for banks and NBFCs have been unified in recent years, enabling a possible merger, according to Deepak Parekh at the press conference. “Additionally, the enhanced balance sheet would further encourage financing of large-scale infrastructure development loans, promote credit growth in the economy, boost low-cost housing, and expand financing to important sectors, including agricultural credit,” he added.
The transaction is likely to be finalized in the next 18 months owing to the multiple approvals required, and also subject to regulatory clearances and other conditions, according to HDFC Bank.
HDFC Limited shareholders would receive 42 HDFC Bank shares for every 25 HDFC Limited shares they own as of the record date.
While the move will help them utilize their distribution across urban, semi-urban, and rural regions, it will also boost their capacity to cross-sell products to a bigger consumer base. The combined financial sheet of Rs 17.87 trillion and the net value of Rs 3.3 trillion will allow for higher-scale underwriting.
The mega-merger of HDFC Ltd and HDFC bank will unleash value for HDFC bank, allowing it to establish a strong home loan portfolio and engage in the housing cycle by expanding its clientele. The amalgamated entity might become the Nifty 50ʹs highest-weighted single corporation.
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