FTSE to decide on HDFC Bank inclusion in September, may lead to $1.3 billion inflows

Once the merger, which is expected to be done by July 1, is completed, HDFC Ltd shareholders will hold 41 percent in HDFC Bank

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HDFC Bank is most likely to replace Housing Development Finance in the FTSE Global Equity indices but the eligibility screening will be done only in the next quarterly review in September.

“The eligibility screenings for HDFC Bank will be assessed in the subsequent quarterly review after the merger, including liquidity and minimum foreign headroom requirement screens as a constituent, as well as reviewing shares and Foreign Ownership Restriction attributed to the HDFC Bank,” FTSE said in a note on June 29.

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This means, at the time of the merger, FTSE will continue with the current free float shares of HDFC Ltd in the indices and rename the constituent with the acquirer’s name HDFC Bank. This will result in no weight changes.

According to Nuvama Alternative & Quantitative Research, “In the subsequent review, FTSE will combine the original HDFC Bank shares provided sufficient liquidity, no foreign ownership restriction and 10 percent plus foreign headroom is available.”

This could lead to a potential weight-up inflow of around 63 million shares of the merged entity worth $1.3 billion.

“In terms of impact this shouldn’t be very significant for the humongous size of the merged entity,” Nuvama added.

Also Read: Merged HDFC entity could see $200 million outflow after MSCI tweak

Currently, July 1 is the tentative date for the completion of the merger of HDFC Ltd with HDFC Bank. The tentative record date is July 13. Both entities are moving closer to completing all the formalities.

For instance, HDFC has now made HDFC Life a subsidiary by increasing its stake to over 50 percent in the insurer. HDFC now holds 50.33 percent of the total paid-up share capital of HDFC Life after getting the green light from the Competition Commission of India (CCI) and the Insurance Regulatory and Development Authority of India.

Once the merger is done, HDFC Ltd shareholders will hold 41 percent in HDFC Bank. The bank will maintain swap ratio of 25:42, so for every 25 shares of HDFC Ltd, 42 shares of HDFC Bank will be given.

At 9.33 am, HDFC Bank was trading at Rs1,691 on the National Stock Exchange, up 0.89 percent from the previous close. HDFC was up 0.69 percent at Rs 2,798.20.