June 25, 2024

Housing Finance Development

It's Your Housing Finance Development

India gears up for $168 billion finance giant as HDFC merger gets closer

With just one crucial stage left, investors are carefully watching for the outcome of the merger of India’s most valuable lender with the country’s top mortgage financier, which might result in the creation of the world’s fifth-most valuable bank.

Within three weeks, it’s anticipated that the ‘record date’ — the deadline established for investors — for the exchange of Housing Development Finance Corp. shares for HDFC Bank Ltd. The process, which began in April 2022, will likely come to a finish by July 20th when the combined entity will begin trading under the HDFC Bank ticker.

The merger, which is unprecedented in India, will result in the creation of a $168 billion bank and affect tens of millions of shareholders and customers across both companies, in addition to group insurance and asset management operations.

A central team, with 3 members from each company, and nearly three dozen committees worked on a business integration plan. Meanwhile, legal approvals were sought from shareholders, banking, securities market and competition regulators as well as stock exchanges with the final nod granted by the company law tribunal in March.

The approvals got done in good time and the integration of technology platforms is at an advanced stage, Keki Mistry, chief executive officer of the mortgage lender told Bloomberg News last week. “The target is for the merger to be effective early July,” he said.

Final Step

After the merger is complete, a cut-off date will be made public to decide which HDFC shareholders are entitled to HDFC Bank shares. After that date, trading in HDFC shares would cease while new shares are allocated and listed, which might take a week or two.

In exchange for 25 shares of HDFC, HDFC Bank would allot 42 new shares. The mortgage lender stated that it will make an effort to coordinate the record date so that there would not be a lag between HDFC shares being suspended and HDFC Bank shares being distributed to its more than 740,000 shareholders.

A day before the record date will be the ex-date which marks the price adjustment between the two merging companies, said Anil Ghelani, head of passive investments and products at DSP Asset Managers Ltd.

HDFC AMC gets SEBI’s final approval for change in control due to merger

The share price of HDFC Bank will change on the ex-date to reflect the value of HDFC. Important stock indices that include the two firms, as well as underlying index funds and ETFs, should take note of this.

Nifty Indices’ new rules indicate HDFC will be excluded from any index on the ex-date and the value of HDFC Bank updated. Earlier rules excluded companies from the index at the beginning of the merger process. This changed soon after the HDFC merger announcement as the two financial majors are among the top five constituents of the benchmark National Stock Exchange’s Nifty 50 by weightage. The exchange did not respond to queries about the exclusion.

Also Read: Mutual funds may not get special exemption on maximum holdings post HDFC Bank-HDFC merger: Report

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Updated: 15 Jun 2023, 07:20 PM IST