HDFC and HDFC Bank Merger

Market Announcements 📢
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The merger between HDFC Bank and HDFC is scheduled for July 1, 2023. It will combine one of India’s largest private sector banks with its parent company. This merger presents an excellent opportunity for the lender to enter the profitable housing finance market. Investors are optimistic about the merger, as it will enable the bank to incorporate the parent company’s significant home loan business into its portfolio. Previously, HDFC Bank had a relatively small mortgage book and often referred customers to its parent company.

Upon completion of the merger, the combined entity will have a home loan portfolio worth Rs 7.3 lakh crore, surpassing State Bank of India’s Rs 6.4 lakh crore (as of March 2023).

Under the merger plan, HDFC will acquire a 41% stake in HDFC Bank. The swap ratio has been set at 25:42, meaning that every HDFC shareholder will receive 42 shares of HDFC Bank for every 25 shares they currently hold. The effective record date for the merger is expected to be around July 13, 2023, pending the completion of specific formalities.

Did you know?

HDFC has warrants listed on BSE (HDFCW3) which are trading at LTP of Rs. 620 (as on 30/06/2023).
The lot size of the warrants if 600 and the exercise price is Rs. 2165. Warrant Expiry date = 10/08/2023

Now, if you buy these Warrants, the total Cost of Acquisition of 600 shares = 600 x (620 + 2165) = Rs. 16,71,000
Now, these 600 shares of HDFC will get converted to 600 x (42/25) = 1008 shares of HDFC Bank.

The current price of HDFC Bank is Rs. 1695. So Investment value will become 1008 x 1695 = 17,08,560 (post merger). This indicates a net gain of Rs. 37560.

Do you think this could be a good arbitrage opportunity / Investment Idea. Share your views on this.

– Shrimohan Jhawar
Product Operations @ Dhan

2 Likes
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Good boost to banking sector for sure.

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Some of the FAQ’s

1. How will the merger affect my holdings in HDFC?
On 13th July 2023 & onwards, your Dhan portfolio will not reflect holdings of HDFC as trading will be suspended effective 12th July 2023.

2. If I want to participate in the merger, when should I buy HDFC Ltd.?
The record date for the merger is 13th July 2023. So in case you wish to participate in the merger, you can buy HDFC on Wednesday 12th July 2023. On the contrary, if you do not wish to participate in the merger, you can sell your holdings on Wednesday 12th July 2023

3. What will happen to my Derivatives position?
The existing F&O contracts of July 2023, August 2023, and September 2023 will pre-expire on July 12, 2023, and shall be physically settled. No F&O contracts of HDFC will be available for trading with effect from July 13, 2023.

4. What will happen to my Derivatives position If HDFC is given as collateral
Again nothing to worry about. If HDFC is given as a collateral against any derivatives position, you will only get margin benefit for exchange margin reporting until you carry the position. However, the margin benefit will not be available for any new positions until you get the credit of shares in your demat account

5. When will I get the credit of shares
In case of mergers & demergers, usually it takes around 30 to 45 days for the credit of shares. However, in this case, this may happen sooner as it is part of Nifty 50 and a front-liner stock. You’ll receive an email from CDSL once the shares are credited to the demat account.

6. When will the allotted shares start trading on the exchanges?
After the credit of shares, the company (HDFC Bank in this case) has to take approval from the exchanges to list the additional shares. Post the approvals are received the shares will start trading on the exchanges.

7. What will be the average price for allotted shares of HDFC Bank?
The average price of allotted HDFC Bank shares will be calculated as: Invested value in HDFC / The number of HDFC Bank shares received (including fractional shares). For example, if you had invested in 25 shares of HDFC Ltd. at a price of Rs. 2550, the invested value will be Rs. 63,000. For these 25 shares, you will receive 42 shares of HDFC Bank. Hence, the average price of 1 (one) share of HDFC Bank will be Rs. 1,517.86 (Rs. 63,750/42).

8. When will I receive the amount for fractional entitlement?
Post allotment of new HDFC Bank shares, if there are any fractional entitlement(s), the amount equivalent to sale proceeds of the fractional quantity will be directly credited to your primary bank account after sell of shares by the trustee appointed by the company.

9. What if I hold less than 25 shares of HDFC Ltd.?
Even if you hold less than 25 shares of HDFC Ltd., you will receive an allotment of HDFC Bank shares.
Let us understand this with the help of an example. For 25 shares of HDFC, you will get 42 shares of HDFC Bank. Hence, if you hold 1 share of HDFC you will get 42/25 = 1.68 shares of HDFC Bank. In this case, you will get 1 Share of HDFC Bank and an amount equivalent to sale proceeds of the fractional quantity i.e. 0.68 shares of HDFC Bank will be directly credited to your registered bank account.

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@iamshrimohan

There is typing mistake in 2nd point.

12 July is Wednesday (you’ve mentioned Tuesday)

Kindly correct the day (or date)

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@pratik01 Thanks for pointing that out, seems a miss at my end. I have made the changes.

1 Like
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UPDATE:

Shares of HDFC Bank allotted against HDFC Ltd. pursuant to Demerger has been credited to your Demat account and have been listed on 17-07-2023 at the exchange(s). The pledged holding will be reflecting in your portfolio from tomorrow onwards.