HDFC Ltd, India's largest housing financing firm, will merge with HDFC Bank, the country's largest private lender, to form a banking behemoth in one of the largest mergers in corporate history. According to stock exchange filings by the companies, HDFC Bank would be 100% held by public shareholders once the merger is completed, and existing HDFC shareholders will own 41% of the bank. For every 25 HDFC Bank shares owned, each HDFC shareholder will receive 42 HDFC Bank shares.
"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, and government initiatives like affordable housing for all, amongst others." Deepak Parekh, Chairman, HDFC Ltd.
Plan for the merger
HDFC Limited, India's largest housing finance company with Rs 5.26 trillion in assets under management (AUM) and a market capitalization of Rs 4.44 trillion, will merge with HDFC Bank, India's largest private sector bank by assets with a market capitalization of Rs 8.35 trillion, according to the transaction structure. HDFC Limited's subsidiaries and partners will likewise be transferred to HDFC Bank.
How will the merger help HDFC
The HDFC-HDFC Bank merger will reduce the risk of a single product failure and increase the merged entity's asset variety. In contrast to the current assignment route, the combined entity will be able to offer mortgage products seamlessly, according to Deepak Parekh, who spoke at a press conference today. Moreover, When costs are reduced, the merged firm enjoys cost savings and is value accretive for both HDFC and HDFC Bank shareholders.
It is to be noted that the merger of HDFC and HDFC Bank has been in the news for some time. In reality, HDFC Chairman Deepak Parekh stated in 2015 that his company would explore merging with HDFC Bank if the circumstances were favourable. However, due to the parent's decision to put the merger on hold, the wait for the merger grew longer. According to Parekh, the combination makes sense as long as shareholders do not lose wealth.
