Mortgage Lender HDFC's Board on April 4, 2022 approved the merger of its wholly owned subsidiaries HDFC Investments Limited and HDFC Holdings with HDFC Bank.
The Board of Directors of HDFC Limited and HDFC Bank Limited ("HDFC Bank") at their respective meetings held on April 4, 2022 approved a composite scheme of amalgamation ("Scheme") for the amalgamation of:
- HDFC Investments Limited and HDFC Holdings Limited, with and into HDFC Limited; and
- HDFC Limited with and into HDFC Bank, and their respective shareholders and creditors, under Sections 230 to 232 of the Companies Act, 2013[1] and other applicable laws including the rules and regulations ("Proposed Transaction").
The Scheme and the Proposed Transaction is subject to customary closing conditions.
- The Scheme is subject to the receipt of requisite approvals from the Reserve Bank of India ("RBI"), Securities and Exchange Board of India ("SEBI"), the Competition Commission of India ("CCI"), the National Housing Bank ("NHB"), the Insurance Regulatory and Development Authority of India ("IRDAI"), the Pension Fund Regulatory and Development Authority ("PFRDA"), the National Company Law Tribunal ("NCLT"), BSE Limited, the National Stock Exchange of India Limited and other statutory and regulatory authorities, and the respective shareholders and creditors, under applicable law.
The subsidiaries/associates of HDFC Limited will become subsidiaries/associates of HDFC Bank once the Scheme takes effect. - Shareholders of HDFC Limited as of the record date will receive 42 HDFC Bank shares (each with a face value of Rs.1) in exchange for 25 HDFC Limited shares (each with a face value of Rs.2), and HDFC Limited's equity share(s) in HDFC Bank will be extinguished as per the Scheme.
- As a result, upon the Scheme's implementation, HDFC Bank will be 100% owned by public shareholders, with existing HDFC Limited shareholders owning 41% of HDFC Bank.
BENEFITS AND STRATEGIC RATIONALE
HDFC Ltd is India's premier housing finance company and has unrivalled relationships, scale and deep underwriting expertise in the housing sector, built over multiple decades and across economic cycles. HDFC Bank, with more than 68 million customers, 6,342 branches and a full suite of credit, liability and distribution offerings is the leading private sector bank with deep relationships, insights and understanding of its customers built over multiple decades.
The combined entity will integrate the two organizations complementing qualities, allowing for a fulfilling customer relationship. Mortgages would be given to HDFC Bank customers as a fundamental product in a seamless manner. It will also take advantage of the long-term mortgage connection to offer a diverse range of credit and deposit options. All clients of the combined entity will benefit from an improved value proposition and customer experience as a result of this.
Over the last few years, regulatory developments and reforms including
- Higher regulatory standards for the Non-Banking Financial Companies (NBFCs) narrowing the gap with the Banking regulatory framework
- Reduction in SLR rates
- Deepening of affordable housing bond market and
- Creation and deepening of Priority Sector Lending ("PSL") Certificates market, have created a conducive environment for amalgamation of the two entities, leading to a "win-win" situation for all stakeholders.
Speaking about the merger, Shri. Atanu Chakraborty, Chairman HDFC Bank, said,
"The product and market leadership of HDFC Limited in the housing finance business and the distribution and customer leadership of HDFC Bank enables the combined entity to offer full suite of financial products to Indians at large and the proposed transaction is a big step in realizing the vision of housing for all as envisioned by our government."
Speaking about the merger, Keki M. Mistry, Vice-Chairman and CEO of HDFC Limited, said
"With the leadership that we have built in housing finance and the deep understanding of the housing market across various economic cycles, this transaction helps in realizing the potential of what HDFC's housing finance business can achieve by leveraging the distribution and customer base of HDFC Bank. It is a step in the right direction, taken at the right time, for value creation for all the stakeholders.
ADVISORS
AZB & Partners, Argus Partners and Singhi & Co. acted as legal advisors to HDFC Limited.
- Managing Partner Zia Mody and Partner Ashwath Rau led the AZB team, which also included partners Vipul Jain and Aditya Alok, as well as Senior Associate Himanshoo Tembe
- Managing Partner Krishnava Dutt was in charge of the Argus team.
- Wadia Ghandy & Co. and Cravath, Swaine & Moore LLP acted as legal advisors to HDFC Bank.
- The Wadia Ghandy team was led by Partners Ashish Ahuja and Gopal Bankar.
- Wadia Ghandy and Cravath have advised HDFC Bank in the past, one where HDFC raised 11,104 crore from KKR and also when HDFC Bank listed its $1.5 Billion GDR
[1] Company: Internal Restructuring, Consolidation and Hiving Off under Section 230 to 232 of the Companies Act, 2013
Section 230. Power to compromise or make arrangements with creditors and member
Section 231: Power of Tribunal to enforce compromise or arrangement
Section 232: Section 232. Merger and amalgamation of companies
