India’s biggest-ever merger meets lukewarm market response
New Delhi, Apr 18 (EFE).- The upcoming merger between India’s largest private bank HDFC Bank, and the country’s largest mortgage lender Housing Development Financing Corporation (HDFC), has not met the initial market expectations, a fact evident by the subsequent drop in their share prices.
After an initial surge in their share values on the National Stock Exchange – 10 percent for HDFC Bank and 8.7 percent for HDFC – on the day when the merger was announced, investors have now reacted cautiously to the move.
“There are a few concerns that the market has become aware of, and then they (concerns) kind of sunk in and this is now getting reflected in the stock prices,” Karan Gupta, the director of consultancy India Ratings and Research, told EFE.
The doubts revolve around how the HDFC Bank would fulfill the regulatory requirements regarding cash reserves and legal liquidity for private sector lenders, prerequisites for acquiring HDFC, and the costs associated with the merger before it starts paying dividends.
If approved by the Reserve Bank of India, the merger would be completed by mid-2023, making it the largest in the history of the country, and result in one of India’s largest finance groups, with a total share volume valued at $359 billion in September 2021.
HDFC Bank, which held a market capitalization of $110 billion on Apr. 1, would get another $59 billion cap through HDFC.
The magnitude of these figures generated quite a buzz among investors when HDFC Bank announced the merger with HDFC on Apr. 1, with the former set to acquire 100 percent of the mortgage firm.
However, the optimism lasted barely 24 hours, and since then the shares have continued to fall, dropping even below the levels registered before the merger announcement.
By Monday, stocks prices of both the entities had fallen by 18 percent compared to their value on Apr. 4.
“Market could have, you know, overreacted to it in the near term. However, the franchise is still very much intact. And they will sort these issues out,” Gupta opined.
Both the groups refused to comment in this regard when contacted by EFE.
The merger comes after the RBI eased regulatory barriers for banks and non-banking financial institution, paving the way for such deals.
Currently, the HDFC operates more than 6,300 bank branches and over 17,000 atms, while HDFC has 651 offices. EFE