The Reserve Bank of India (RBI) has asked mortgage lender Housing Development Finance Corporation Ltd (HDFC) to reduce stake in HDFC Life Insurance and HDFC Ergo -- post-merger with HDFC Ergo Health Insurance -- to 50 percent or below from 51.43 percent and 50.58 percent, respectively.
At present, the corporation holds 52.25 percent in HDFC Ergo Health and 50.48 percent in HDFC Ergo and based on the share exchange ratio, HDFC Ltd is entitled to 50.58 percent in the merged entity, HDFC Ergo. The stake needs to be reduced within a period of six months from the date of the merger.
In the case of HDFC Life Insurance Company, the corporation needs to lower the stake by December 16, 2020, to 50 percent or below form existing 51.43 percent holding.
“The stake sales could be worth Rs 1,500 crore – 14 percent of FY21e profit and 1-2 percent of net worth. HDFC Ltd may utilize such gains to build buffer-provisions. Regular dividend may go down a bit,” a brokerage said.
Even as HDFC’s stake goes to 50 percent or below (Esop conversion can also drive slow dilution), these companies may continue to be consolidated as HDFC Ltd may be able to exercise control on the board; dividends and other regulations may also not change, it added.