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HDFC Bank, CBoP merger ratio at 1:29

Comment Share Text size: A A A Last updated on: February 25, 2008 10:55 IST The board of HDFC Bank on Monday approved issuance of one equity share for every 29 held in Centurion Bank of Punjab for merger of the two financial institutions. The board has approved the share swap ratio of one share of Rs 10 each of HDFC Bank for every 29 shares of Re 1 each held in Centurion Bank of Punjab, HDFC Bank said in a filing to the Bombay Stock Exchange. The share swap ratio is subject to due diligence to be conducted in this regard, it said. The board noted that in the event of the merger, it would consider making a preferential offer to its promoter, Housing Development Finance Corporation Ltd, to enable HDFC to maintain its shareholding percentage in the bank. HDFC Bank's board will meet on February 28 to consider the draft scheme of amalgamation, it said. Earlier on Sunday, the boards of directors of HDFC Bank and Centurion Bank of Punjab (CBoP) separately gave their in-principle approvals for merger of the two banks. HDFC Bank is expected to pay Rs 10,000-Rs 12,000 crore (Rs 100-120 billion) in shares for absorbing CBoP. Independent firms -- Dalal & Shah and Ernst & Young -- appointed by the two banks would work over the weekend to prepare their reports on the valuation of CBoP in time for boards of the two banks to consider when they meet again on Monday to consider the swap ratio for the all-stock deal. The boards of both banks will meet on February 25 to consider the swap ratio and on February 28, to consider the draft scheme of amalgamation and any other matters as required. Consulting firm KPMG is the advisor to HDFC Bank and investment bank Ambit Corporate Finance to Centurion Bank. "The swap ratio is expected to be around 1:25-30," said a banking source. The merger will make HDFC Bank the country's seventh largest bank after Bank of India (BoI) and ahead of IDBI Bank, from the current 10th position. The merger talks between the two banks began in January 2008 after the principal shareholders of CBoP -- Bank Muscat with 14.02 per cent stake, Sabre Capital with 3.48 per cent stake and Kephinance Investment (Mauritius) with 6.13 per cent -- decided to exit. The three had signed a shareholders' agreement in 2003, which provided that any decision to sell the stake would be taken together.

HDFC Bank is hopeful of completing the integration process in about five to seven months. The merged entity will not offer home loans as this would lead to a conflict of interest with HDFC Bank's parent, Housing Development Finance Corporation. HDFC Bank will have the option to sell the home loan portfolio of CBoP to HDFC. HDFC holds 23.28 per cent stake in HDFC Bank. Its holding is expected to fall below 20 per cent after the merger. Banking sources said HDFC would approach RBI to allow HDFC to maintain its stake at 20 per cent. HDFC Bank, like in the past, could make a preferential offer to HDFC, which had earlier indicated that it would want to hold at least 20 per cent stake in the bank at all times. A senior HDFC Bank official indicated that Rana Talwar, the chairman of Centurion, will have no role to play in the merged entity. Shailendra Bhandari, the managing director and CEO of Centurion will be appointed as a member of the merged bank and will have no role in the day-today operations of the bank. Bhandari will help in the process of integrating the two entities." The official added, "There is no scope for appointment of a deputy managing director (in the merged entity)." HDFC will continue to have two representatives on the board of the merged entity." The merger will be a win-win situation for HDFC Bank as it would acquire around 400 branches and skilled personnel. The branch acquisitions will boost the presence of HDFC Bank in the northern and the southern regions. CBoP has close to 170 branches in the north and around 140 branches in the south. While HDFC Bank has nearly 250 branches in the north and nearly150 branches in southern India. CBoP has a concentrated presence in the southern state of Kerala, where HDFC would have to consider reorganisation. "We will also acquire a strong SME (small and medium enterprises) portfolio from CBoP. There is no overlapping of HDFC Bank and CBoP customers," the HDFC Bank official said. The integration will be a challenge for HDFC Bank. Though the cultures of Centurion Bank employees would match with HDFC Bank but the culture of employees of Lord Krishna Bank and Bank of Punjab will definitely not be very similar to HDFC Banks.

centurion Bank of Punjab, HDFC Bank to merge


TNN Feb 23, 2008, 12.19am IST
NEW DELHI: It's official now. HDFC Bank and Centurion Bank of Punjab (CBoP) will be merged to form a bigger bank. The announcement of merger will be made after both the banks' board meeting on Saturday. Banking sources said both banks have agreed to merge as it fits into their growth prospects. For around 25 shares of Re 1 of CBoP, an investor will get one share of Rs 10 of HDFC Bank. In last two days, share price of CBoP moved from Rs 49.85 on Wednesday to Rs 56.40 on Friday. However, it seems, investors of HDFC Bank did not like the development. The share price of HDFC Bank on Thursday moved up from Rs 1,534.50 to Rs 1,543. But on Friday, it fell sharply to Rs 1,475. Prior to this, in August 2007, CBoP was merged with Lord Krishna Bank. A senior banker said according to terms and conditions, Rana Talwar, the present chairman of CBoP, will be the chairman, and present MD of HDFC Bank Aditya Puri will be MD of the merged bank. At present, CMD of HDFC Ltd Deepak Parekh is the chairman of HDFC Bank. A senior official of HDFC Ltd denied any such arrangement where the chairmanship of the combined entity will go to Rana Talwar. At present HDFC Ltd owns 23.28% of equity capital in HDFC Bank After the merger, its holding in the combined entity will come down to 19.20%. Rana Talwar, who owns 2.45% in CBoP through Sabre Capital, will be reduced to a marginal shareholder in the combined company. However, Bank of Muscat, which owns 14.02% in CBoP will get around 2.45% share in the combined entity. Total branches of the combined entity will be around 1,100 in over 400 cities and towns. A senior bank official said the merger will help HDFC Bank to penetrate rural areas. Lord Krishna Bank merger gave CBoP an access to rural network. The total depsoits of the new merged entity will be around Rs 1.35 lakh crore. As on March 2007, HDFC Bank had deposits of Rs 99,400 crore and that of CBoP was Rs 14,863 crore. Analysts feel the merger will affect profitability of HDFC Bank. Net non performing assets of CBoP is higher at 1.13% than 0.4% of HDFC Bank. Besides, HDFC Bank has a much stronger stream of income from fees and commission, In 2006-07, it had earned around Rs 1,300 from fees and commission. Similar income of CBoP is much smaller.

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