HDFC Bank-HDFC Merger: Foreign Investors' Headroom May Expand By 300 Basis Points In Combined Entity
Both the stocks haven't moved much since the merger was announced in April 2022 and foreign holdings declined.
Headroom for foreign investors may expand to 18% in the merged private lender once Housing Development Finance Corp. and HDFC Bank Ltd. merger becomes effective on July 1.
Global Index provider MSCI intends to add HDFC Bank to the large-cap segment of MSCI Global Standard Indexes with a "foreign inclusion factor of 0.37 after applying an adjustment factor of 0.5", it said in a statement.
The two stocks haven't moved much since the merger announcement in April 2022, and the foreign holdings fallen in both. It stood at 64.69% in HDFC as of March 2023 compared with 68.76% a year earlier; and fell from 68.69% to 65.74% in HDFC Bank during the period.
This has increased the headroom for foreign holdings to nearly 18% in the merged entity, up from 15% at the time of announcement.
After the merger, passive trackers or exchange-traded funds will own around 11% of the company; American depository receipt holders will have 13.7%; retail and high-net-worth investors will hold 10.5%; and insurance companies will own 8.25%, according to Brian Freitas, an independent analyst who tracks index rebalancing. That leaves around 55% of the shares outstanding in the hands of active investors.
According to the merger scheme, shareholders will receive 42 shares of HDFC Bank for every 25 held in HDFC. The shares currently held by the parent HDFC in the banking arm will be extinguished. Meaning the current shareholders of HDFC will own around 41% of HDFC Bank, which will have nearly 100% free float.
The merged entity is likely to trade from July 17, while HDFC shares will trade for the last time on July 12, with the record date set at July 13.
The bank hopes to credit shares to the accounts of HDFC shareholders within three days, a herculean task given it only has three days—one weekday in Friday, and the weekend. The trading in merged HDFC Bank is expected to commence from Monday.
While technology allows seamless primary issuances, the Indian financial system is still untested in handling such a fast-tracked transaction in the secondary market.