HDFC Ltd announces merger with HDFC Bank; stocks surge up to 10%—know share distribution arrangement

HDFC Limited will merge into HDFC Bank, India's largest private sector bank by assets, as part of transformational merger, read a regulatory filing by the two companies on Monday.  

"We wish to inform you that the Board of Directors of Housing Development Finance Corporation Limited ("Corporation") at its meeting held today i.e. April 4, 2022, has inter alia approved a composite scheme of amalgamation ("Scheme") for the amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, wholly-owned subsidiaries of the Corporation, with and into the Corporation and (ii) the Corporation with and into HDFC Bank Limited ("HDFC Bank")," said HDFC Ltd in a regulatory filing on Monday 

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As part of the arrangement, subsidiary/associates of HDFC Limited will become subsidiary/associates of HDFC Bank. HDFC Limited shareholders will receive 42 shares of HDFC Bank for 25 shares of HDFC Limited as per the scheme of arrangement.   

"HDFC and HDFC Bank have announced merger in the ratio of 0.6:1 i.e. shareholders of HDFC Ltd will receive 42 shares of the bank for every 25 shares of HDFC ltd. Values HDFC ltd at ~4% above Friday’s closing price. It will entail issuance of 1877m shares by HDFC Bank (cancellation of HDFC stake in the bank) and a dilution of 25% for the bank on a post-issuance basis," said JM Research.  

Total combined loan book of Rs18.11tn with mortgages forming 27% of the loan mix, said the research.   

"PSL compliance and CRR/slr can be sizeable drags on the bs of the bank," it added 

Meanwhile, post the merger, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC Limited will own 41% of HDFC Bank.  

Shares of HDFC Ltd and HDFC Bank rose up to 10% after the merger news became public. HDFC Bank hit 9% upper circuit to Rs 1656.90 a share and HDFC Limited rose 10% to Rs 2745.30 per share on the BSE on transformational merger news.  

As per the Scheme, the appointed date for amalgamation of HDFC Investments Limited and HDFC Holdings Limited with and into the Corporation shall be the end of the day immediately preceding the effective date of the Scheme. Further, the appointed date for the amalgamation of the Corporation with and into HDFC Bank shall be the effective date of the Scheme.