India set for $168 bn behemoth as HDFC merger to be completed by 20 July

The merger of India’s most valuable lender and the nation’s largest mortgage financier to create what could be the world’s fifth-most valuable bank is inching closer to completion, with just one key step remaining that investors are watching for closely. 

Announcement of the so called ‘record date’ — or the cut-off day set for investors — for the swapping of shares of Housing Development Finance Corp. for HDFC Bank Ltd. is expected within three weeks. The merged entity is likely to trade under the HDFC Bank ticker before July 20, bringing an end to the process that began in April 2022.

The merger is unprecedented in India, creating a bank worth $168 billion and impacting over tens of millions of customers and shareholders across the two companies apart from group insurance and asset management businesses.

A central team, with 3 members from each company, and nearly three dozen committees worked on a business integration plan. Meanwhile, legal approvals were sought from shareholders, banking, securities market and competition regulators as well as stock exchanges with the final nod granted by the company law tribunal in March.

The approvals got done in good time and the integration of technology platforms is at an advanced stage, Keki Mistry, chief executive officer of the mortgage lender told Bloomberg News last week. “The target is for the merger to be effective early July,” he said.

Inside A Housing Development Finance Corporation Ltd. Bank Branch And Chief Executive Officer Keki Mistry Interview

Keki Mistry, chief executive officer of Housing Development Finance Corp.

Final Step
 

Once the merger is effective, a cut-off date will be announced to determine HDFC shareholders eligible to receive HDFC Bank shares. HDFC shares will stop trading on that date and it would take a week or two for allocation and listing of new shares. 

HDFC Bank will allocate 42 new shares for 25 shares of HDFC. The mortgage lender said it will try to time the record date to ensure no gap takes place between HDFC shares being suspended and HDFC Bank shares being allocated to its over 740,000 shareholders.

A day before the record date will be the ex-date which marks the price adjustment between the two merging companies, said Anil Ghelani, head of passive investments and products at DSP Asset Managers Ltd. 

On the ex-date, the HDFC Bank share price will adjust to incorporate the value of HDFC. This is important for key stock indexes that include the two companies, as well as overlying index funds and ETFs.

Nifty Indices’ new rules indicate HDFC will be excluded from any index on the ex-date and the value of HDFC Bank updated. Earlier rules excluded companies from the index at the beginning of the merger process. This changed soon after the HDFC merger announcement as the two financial majors are among the top five constituents of the benchmark National Stock Exchange’s Nifty50 by weightage. The exchange did not respond to queries about the exclusion.