The fall in share prices of HDFC and HDFC Bank is temporary and is perhaps because the management was unable to articulate the benefits of the merger in a clear manner, said Keki Mistry, Vice chairman and chief executive officer (CEO) of HDFC Ltd.
Speaking at Economic Times India Economic Conclave 2022, Mistry said, “This is very short term. We have not been able to communicate in a very articulate manner and clear manner on the HDFC merger as earnings were due”.
“The day the merger was announced, the stock price shot up dramatically. I think it hit the circuit and then it came down”, he added.
On April 4, HDFC and HDFC Bank announced that their boards have approved an all-stock amalgamation of the former into the latter to create a banking behemoth. The merger, of course, would be subject to regulatory approvals.
The stock price of HDFC shot up 9.3 per cent from Rs 2,450.95 on April 1 to Rs 2,678.98 on April 4, the day the merger was announced. Similarly, HDFC Bank’s share price was Rs 1,656.45 at the bell on April 4, up 9.97 per cent from the April 1 closing price.
However, since April 1, HDFC and HDFC Bank have lost 9.97 per cent and 10.01 per cent, respectively as of Friday’s close. And, Mistry said the share prices will recover once the investors understand the advantages of the merger.
“The strength of the combined balance sheet is going to be huge and will be a massive benefit for the economy. HDFC as a housing finance company has a higher cost of funds than banks. When we move into the banking structure, the total cost of funds of the entity will come down, which means money will be available at the lower rate to fund the mortgage business,” he added.
Mistry also said, HDFC will have the benefit of distribution at all 6,500 branches of the bank. Today not all branches of HDFC Bank source housing loans from HDFC.
The merger of HDFC-HDFC Bank will be a two-step process wherein HDFC Investments Ltd and HDFC Holdings Ltd, wholly-owned subsidiaries of HDFC, will be merged with and into HDFC. HDFC will then be merged with HDFC Bank. HDFC is the promoter of HDFC Bank and, together with its two subsidiaries, currently holds 21 per cent of the bank’s share capital.
The entire process, including getting approvals from shareholders of HDFC and HDFC Bank respectively, Reserve Bank of India (RBI), stock exchanges, Securities and Exchange Board of India (Sebi), and other regulatory approvals will take 15-18 months. Till all the approvals are in place, both HDFC Ltd and HDFC Bank will operate as separate entities.
The share exchange ratio for the amalgamation of the corporation with and into HDFC Bank will be 42 equity shares of face value of Re 1 each of HDFC Bank for every 25 fully paid-up equity shares of face value of Rs 2 each of the corporation. Post the merger, HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC Limited will own 41 per cent of HDFC Bank.
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
Stay connected with us on social media platform for instant update click here to join our Twitter, & Facebook
We are now on Telegram. Click here to join our channel (@TechiUpdate) and stay updated with the latest Technology headlines.
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
Denial of responsibility! NewsAzi is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.
