HDFC Limited, India's largest housing finance company, will be merged with HDFC Bank, the country's largest private sector lender, HDFC Bank said in an exchange filing. The transaction is expected to close within 18 months after regulatory approvals from RBI, IRDAI, CCI, SEBI and the stock exchange, HDFC Bank said in the exchange filing.
After the merger, HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC Limited will own 41 per cent in HDFC Bank.
Shareholders of HDFC Limited, as of the record date, will receive 42 shares of HDFC Bank with a face value of Re 1 for each of 25 shares with a face value of Rs 2, each.
Deepak Parekh, Chairman, HDFC Limited, said in a statement, "The resulting larger balance sheet would allow underwriting of large ticket infrastructure loans, accelerate the pace of credit growth in the economy, boost affordable housing and increase the quantum of credit to the priority sector, including credit to the agriculture sector.”
According to analysts, this merger will correct the underperformance of the HDFC twins — HDFC Bank and HDFC Limited. Both HDFC Bank and HDFC Limited have moved only 6 per cent in the past six months. HDFC Bank shares spiked over 11 per cent on Monday while HDFC Limited spiked over 12 per cent.
"The shareholders of both entities stand to benefit substantially as already reflected by the sharp up moves in their stock prices. For shareholders, this is far better than a buyback at higher prices. This mega-merger will correct the recent underperformance of the HDFC twins. The stock prices of HDFC twins are likely to remain firm even after this morning's sharp spike. 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 has been proved to be a short-sighted decision," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
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