Sebi sees no need to give more time to mutual funds for realigning portfolios in merger-bound HDFC twins

The market regulator Sebi does not see any need for giving more time to mutual fund houses with large holdings in the merger-bound HDFC twins, to realign their portfolios post-merger since there’s no material data and given the highly liquid nature of these stocks demanding such an extension. In the biggest merger in the history of India Inc, HDFC in April 2022 said it would merge with its own banking subsidiary in a USD 40-billion all-stock deal — after 46 years of being a home loan financier and in between creating the country’s largest private sector bank and four other financial sector brands in the insurance, AMC and brokerage businesses.

And this Tuesday (June 27), HDFC chairman Deepak Parekh said the boards of the Corporation and HDFC Bank will meet on June 30 to finalise the last contours of the merger which is expected to be effective July 1..

He has also said that would be the last meeting of HDFC board and also his as the chairman after working in the company from day one of its inception in October 1978.

After a marathon board meeting, Sebi chairperson Madhabi Puri Buch told reporters late last night at her headquarters that “available data do not demand that mutual funds should be given more time to realign their portfolios after the merger of the HDFC twins.

“There is no material evidence to suggest that the merger and the resultant increase in their holdings in the much larger HDFC Bank needs any special attention since only a few schemes will have marginally larger than the permissible 10 per cent holding,” she said, adding “and none of them will have more than 12 per cent holdings in the merged bank.”.

She further said, another reason is that the HDFC twin stocks are so liquid there is no worry about market demand. Moreover, there are already existing exceptions in place and fund houses already have three months to realign.. She admitted that mutual funds umbrella body Amfi had sought some special dispensation to realign their portfolios and on checking the holding structure data we found that there is no room for any concerns in terms of market volatility due to merger-driven selloff in the bank stock. The reverse merger of HDFC into the bank will create a financial services titan with a combined asset of Rs 31.9 lakh crore and a loan book of Rs 22.2 lakh crore as of March 2023 numbers. The entities combined booked a net income of Rs 60,348 crore for FY23 (Rs 44,109 crore by the bank and Rs 16,239 crore by the Corporation).

The combined shares of the HDFC twins will have the highest weighting on the indices at over 14 per cent, much higher than the present index heavyweight Reliance Industries with a tad more than 10 per cent weighting.

Post merger, HDFC Bank will be 100 per cent owned by public shareholders, and the existing shareholders of HDFC will own 41 per cent of the bank. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold.