Gruh Finance tumbles 14% on unfavourable share swap ratio

Shares of Gruh Finance tanked as much as 14.36 per cent to Rs 262.20 apiece on Tuesday after it announced amalgamation with Bandhan Bank in an all-stock deal.

At 10:08 am, the stock was trading at Rs 267 apiece on BSE, down nearly 13 per cent.  

According to the share swap ratio, for every 1,000 shares of Gruh Finance shareholders will get 568 shares of Bandhan Bank. This is around 7 per cent discount to the closing price of Gruh Finance as of Monday (January 7, 2019). 

Gruh Finance, promoted by the country's largest mortgage firm HDFC, is into financing of affordable housing segment. HDFC owns 57.86 per cent in Gruh Finance as on September 30, 2018.

The amalgamation will result in enhancement of shareholders' value accruing from synergy of operations, new products development, integration of technology and information, both the companies said in regulatory filings to stock exchanges.

Bandhan Bank stock, too, slipped as much as 6 per cent in the early deals on BSE. However, it recovered later and was trading at Rs 486.65 apiece, down nearly 3 per cent.

HDFC, which according to analysts, is the biggest beneficiary of the deal, was trading flat at Rs 1,962, down 0.46 per cent. 

HDFC incrementally has increasing share of affordable housing both in volume and value terms. There has been an overlap in the business of both GRHF and HDFC, especially in the western region. HDFC could monetize its investment in GRHF at a very attractive valuation (13.3x Trailing BV), observe analysts at Motilal Oswal Financial Services.  

"Post deal, HDFC will have nearly 15 per cent stake in the bank. According to regulations, it can own a maximum stake of nearly 9.9 per cent in another bank (as already shareholder in HDFCB) subject to regulatory approval. If it sells nearly 5 per cent stake, then it can fetch Rs 40 billion (based on combined m-cap of Rs 806 billion on the deal value)," they say.

For Bandhan Bank, it is a step closer to fulfil the RBI’s shareholding requirement. As of 1HFY19, promoters held 82.3 per cent shareholding in the bank and post deal it would come down to 61 per cent. Bandhan promoters will have to reduce their shareholding to nearly 40 per cent at the earliest to comply with the regulatory requirements.