MOSL: GRUH FINANCE (Coverage Suspended)-Bandhan Bank acquires Gruh Finance in an all-stock deal

Gruh Finance: Bandhan Bank acquires Gruh Finance in an all-stock deal

(GRHF IN, CMP INR295, Coverage Suspended)

GRUH Finance (GRHF) and Bandhan Bank (Bandhan) has announced a scheme of amalgamation and according to the share swap ratio, for every 1,000 shares of GRHF shareholders will get 568 shares of Bandhan. This is at an ~8% discount to the closing price of GRHF as of 7 Jan’19 and at a ~2.5% premium to the last six months average price. Following this event, GRUH Finance will cease to be a part of our coverage universe.

• Post amalgamation, Bandhan will have strong presence in the affordable housing segment. This will also help Bandhan to increase its reach in the western region. The share of unsecured loan book will decline to 57% v/s 86% as of 1HFY19. Promoter shareholding of Bandhan will fall to 61% v/s 82.3% as of now. This will take Bandhan a step closer to fulfil the 40% promoter shareholding requirement.
• The biggest advantage for GRHF is access to a stable source of funding and ability to expand its presence in the eastern region on the back of Bandhan’s branch network. Any future regulatory issue due to overlapping of business with the parent would be avoided.
• HDFC Ltd will become the largest shareholder (Post Promoter) of Bandhan with ~15% shareholding. According to regulations, HDFC Ltd can a maximum hold 9% in any banking entity, subject to regulatory approval, and hence, we expect at least ~5% stake sale in future from HDFC Ltd in Bandhan (~INR40b based on combined MCAP of INR806b).