HDFC Ltd., India’s largest mortagage financer will merge into HDFC Bank, it’s own banking arm.
“This is a merger of equals”, said Deepak Parekh, chairman of HDFC. “Over the last few years, various regulations for banks and NBFCs have been harmonised, thereby enabling the potential merger,” he said.
“The biggest motivation for the deal is creating demand in the housing market as our penetration in this segment is very low,” said HDFC Bank CEO Sashidhar Jagdishan. “The value of HDFC Ltd is $60 billion. If you strip off the portion of their holding in us, it comes to $40 billion and that’s the value of the deal.”
Shareholders of HDFC will get 42 shares of HDFC Bank for every 25 shares held. HDFC’s 26% stake in HDFC Bank will be extinguished as per the terms of the merger. HDFC Bank will be 100% owned by public shareholders, with existing shareholders of HDFC Ltd owning 41%.
This merger will create a financial services giant that will be twice the size of ICICI Bank. As per one estimate, almost 70% of HDFC’s customers don’t use HDFC bank. The merger can help cross selling and improve the bank’s operations.
Shares of both HDFC and HDFC Bank saw a sharp jump as they jumped 10% and 9.29% respectively. They opened higher today but fell around 2% to trade around Rs 2625 and Rs 1612 respectively.
Highlight by Aman Agarwal.