While I am still of the opinion that the merger will be good in the long term, there will be challenges in the short term, and not to be ignored is the stock selling pressure generated by investors bailing out, and also because HDFC may have to sell significant stake if it didn’t get RBI approval for retaining 15% in the merged entity. Therefore, I have decided to sell my holding and wait for price to bottom out before getting in again.
HDFC can hold only 10% of a bank as investment as they are promoter of another bank HDFC so they will need to sell around 5% of Bandhan bank.
Not necessarily. Quoting from the article below
Parekh added that HDFC will seek approval from the RBI to retain upto 15 percent in the merged entity. As per the RBI’s rules, HDFC can hold upto 10 percent. It needs approval for holding anything more than 5 percent stake in a bank. “If the RBI doesn’t give us approval, we will bring down our holding to 9.9 percent since this is a financial investment for HDFC,” Parekh added.
Can you explain in simple terms… I have never experienced such share swap deals before. I am a quarter old in equity investing.
I hold let’s say 10 shares of [email protected] 300…what will I get during Merger… Will I get 6 shares of bandhan at prevailing rate or the calculation will be impacted by price falls. %.
Please guide. Thanks!
You get 6 shares…price can be 200 or 600 or anything in between, doesn’t matter.
Edit: I was under the impression that swap ratio is 3:5, and not 568:1000.
you will get 5 shares and 0.68 * share price of bandhan bank as on record date (net of expenses).
Ratio is 568 shares of Bandhan bank for every 1000 shares held. So actually you would get only 5 shares (as partial shares can not be issued) of Bandhan bank for 10 shares of Gruh and rest would paid out.
Market cap of bandhan has reduced by about Rs 10,500 crs (fall from Rs 550 to Rs 460) post merger announcement. This is the amount that the market attributes as overpayment for the purchase. This amount is also roughly half the market cap of Gruh; and can then be inferred as parentage premium.
I hold Bandhan Bank (~10% of portfolio) and intend to hold for long term.
I was thinking if it would be better to sell out bandhan and put the money in GRUH. There seems to be an arbitrage opportunity.
Eg- Assume I hold 568 shares of Bandhan currently. So, value = 568 x 463 = 263K
If this is converted to GRUH shares, I can get 263K/244 = 1077 GRUH shares. When these 1077 shares are converted to Bandhan it will result into 1077 x 568/1000 = 611 Bandhan shares. So, my 568 shares becomes 611 shares irrespective of price movements.
Is there any catch?
You have to deduct transaction charges/brokerage from both buy sell transactions so net arbritage will reduce. Also prices of both stocks are fluctuating so your actual buy/sell may be bit different.
In nutshell, you can make around 4-5% post brokerage charges.
Keep in mind, record date is 1st of Jan this year.
Sorry if it is a dumb question.
If I switch from Bandhan to GRUH today, what is the impact of the 1st Jan record date?
no impact… dont forget the taxes… If you are holding bandhan bank at lower rates and sell at higher price, capital gains will be applicable.
In addition to this what is the impact on the long term capital gains tax. I am holding the Gruh shares for more than a year… earlier with grandfathering, the tax was applicable based on the gains made from the 31st Jan prices.
Now with merger there won’t be any Gruh. How is the cost of acquisition taken ?
What would happen if I buy Gruh shares today or some time between January 1 to amalgamation announcement date ? My understanding is record date will be announced later however the merger is effective from Jan 1, 2019.
Say Purchase Cost = 100,
Grandfathered Cost = 296.625.
Now when the merger happens, the purchase cost will be 100/0.568 = 176.06
The benefit of grandfathering should not be available as the notification does not cover special situations after 31-01-2017… It is my opinion.
Capital gains should be calculated as normal.
So to take the benefit of grandfathering clause, one should sell the share now and buy in another hand or after 1 day.
Even selling in one exchange & buying in another will do. There must be a movement of shares in the depository account.
“In situations such as mergers, demergers, ESOPs etc. which occur before January 31, the grandfathering benefit will be available even if STT was not paid at the time of purchase. The notification however does not cover situations where such corporate actions happen after January 31,” he said.
RBI has got strict about regulations. This transaction has happened because of that in first place. Also, Kotak exception request was denied.
Price movement will determine if this is beneficial or not. Ideally now once the swap ratio is announced, the stock price was supposed to be moving in sync.
Exact benefit can be determined only based on the price on the record date. You are using the today’s value to calculate 611 Bandhan shares. Assuming Gruh holds-on and bandhan falls than you are better holding of to gruh shares till that time- sell them and then buy bandhan (assuming you want to hold it for long term). So it all depends on the price on the record date ( not 1st January).
IMO this 611 shares is a fixed deal. Converstion will help definitely. As the approvals start coming in, this 4-6% gap will close and will come to about 0.5% to 1%. The converstion arbitrage should vary between 4-6% only unless one can see a significant problem with the deal happening.