Titans Unite: HDFC’s $168B Merger Ignites Banking Arena

Investors around the world are eagerly awaiting the final stage of the merger between India’s most valuable lender, Housing Development Finance Corp (HDFC), and the country’s top mortgage financier, HDFC Bank Ltd. This groundbreaking merger has the potential to create the world’s fifth-most valuable bank, with a projected worth of $168 billion.

The process, which commenced in April 2022, is now nearing its completion, with the anticipated “record date” set for the exchange of HDFC shares for HDFC Bank shares within the next three weeks. On July 20th, the newly merged entity will begin trading under the HDFC Bank ticker, ushering in a new era for both companies.

This merger will have far-reaching implications, affecting millions of shareholders and customers across both organisations, as well as their group insurance and asset management operations. A central team of three members from each company, along with nearly three dozen committees, has been diligently working on a comprehensive business integration plan. Alongside this, legal approvals were diligently sought from various regulators, including shareholders, banking, securities markets, competition authorities, and stock exchanges. The final green light was granted by the company law tribunal in March.

According to Keki Mistry, the CEO of HDFC, all the necessary approvals have been obtained, and the integration of technology platforms is currently at an advanced stage. He revealed to Bloomberg News that the target is for the merger to be effective in early July.

Once the merger is finalised, a cut-off date will be announced to determine which HDFC shareholders are eligible to receive HDFC Bank shares. During this period, trading in HDFC shares will be temporarily suspended while new shares are allocated and listed. This process is expected to take approximately one to two weeks. As part of the exchange, HDFC Bank will allot 42 new shares for every 25 shares of HDFC held. To ensure a smooth transition, HDFC has expressed its intention to coordinate the record date to minimise any delays in the distribution of HDFC Bank shares to its extensive base of over 740,000 shareholders.

The day before the record date, known as the ex-date, will witness a price adjustment between the two merging entities. Anil Ghelani, the head of passive investments and products at DSP Asset Managers Ltd, explains that this adjustment will reflect the value of HDFC in the share price of HDFC Bank. Major stock indices, underlying index funds, and ETFs need to take note of this adjustment.

In light of this merger, Nifty Indices has introduced new rules. On the ex-date, HDFC will be excluded from any index, and the value of HDFC Bank will be updated accordingly. The previous rules called for the exclusion of companies at the beginning of the merger process. However, this was revised after the announcement of the HDFC merger, given that both financial powerhouses are among the top five constituents of the benchmark National Stock Exchange’s Nifty 50 by weightage. The exchange authorities have yet to respond to queries about the exclusion.

As India prepares to welcome the creation of a $168 billion finance giant, the successful completion of the HDFC merger holds immense promise for the country’s financial sector. With extensive planning, regulatory approvals, and technological integration, the stage is set for a seamless transition and the emergence of a banking powerhouse that will make a substantial impact on the global financial landscape.

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