HDFC Ltd will acquire a 41% stake in HDFC Bank
The largest merger in the finance sector will soon take place when the mortgage firm Housing Development Finance Corporation (HDFC) Ltd will merge with HDFC Bank Ltd, creating an entity with a combined market capitalization of Rs.13.50 lakh crore. The HDFC Ltd-HDFC Bank merger is expected to be completed by the second or third quarter of FY24.
On Monday, the Mortgage lender HDFC Ltd said its board has approved the merger of its wholly-owned subsidiaries HDFC Investments Limited and HDFC Holdings Limited with HDFC Bank Limited. HDFC said the proposed transaction shall enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base.
HDFC Ltd is India’s largest housing finance company with total assets under management of Rs.5.26 lakh crore and a market cap of Rs.4.44 lakh crore. HDFC Bank is India’s largest private sector bank by assets with a market cap of Rs.8.35 lakh crore.
HDFC Ltd will acquire a 41 percent stake in HDFC Bank through the transformational merger, according to an HDFC Bank filing with the stock exchanges. After the merger, HDFC Bank will be 100 percent owned by public shareholders.
Shareholders of HDFC Ltd as of the record date will receive 42 shares of HDFC Bank (face value of Rs one each) for 25 shares of HDFC Ltd of Rs two each. HDFC Ltd’s shareholding in HDFC Bank will be extinguished as per the scheme of amalgamation.
HDFC Bank shares shot up by 6.43 percent to Rs.1,603.15 on the BSE on Monday. HDFC Ltd shares rose by 7.11 percent to 2,625.10 in the opening session.
HDFC Limited has total assets of Rs.6,23,420.03 crore, turnover Rs.35,681.74 and net worth of Rs.1,15,400.48 crore as on December 31, 2021. HDFC Bank has total assets of Rs.19,38,285.95 crore as of December 31, 2021, turnover (includes other income) of Rs.116,177.23 crore for the nine months ended December 31, 2021, and a net worth of Rs.223,394.00 crore as on December 31, 2021.
Deepak Parekh, Chairman of HDFC Limited, said, “this is a merger of equals. We believe that the housing finance business is poised to grow in leaps and bounds due to the implementation of RERA, infrastructure status to the housing sector, government initiatives like affordable housing for all, amongst others.”
“Over the last few years, various regulations for banks and NBFCs have been harmonized, thereby enabling the potential merger. Further, 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,” Parekh said.
Sashidhar Jagdishan, CEO & MD, HDFC Bank, said “the proposed transaction ticks all the right boxes in terms of completion of product offerings, product leadership in home loans as with other retail assets products, distribution strength across the country and a customer base that can be leveraged to cross-sell a complete suite of financial products. It is value accretive for all the stakeholders of both the organizations, including shareholders, employees, and customers.”
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