IDFC First Bank has approved a merger with IDFC Ltd to simplify its corporate structure and ensure regulatory compliance. The merger ratio has been set at 155:100, meaning that for every 100 shares of IDFC held by shareholders, they will receive 155 shares of IDFC First Bank. However, this announcement had contrasting effects on the stocks of both banks. While IDFC First Bank witnessed a decline of 5%, IDFC Ltd experienced a surge of 2%. This unexpected outcome has caused confusion and uncertainty among investors.
In a surprising move, IDFC First Bank recently announced its approval for the merger of IDFC Ltd into its own entity aiming to simplify its corporate structure and streamline regulatory compliances.
The consolidation of IDFC FHCL IDFC Ltd and IDFC First Bank into a single institution will create a diversified entity with public and institutional shareholders eliminating any promoter holding.
Sanjeeb Chaudhuri the chairperson of IDFC First Bank expressed enthusiasm for the next phase of their growth journey and the creation of sustainable shareholder value. However, the scheme’s implementation is subject to the necessary approvals from regulatory authorities such as the RBI (Reserve Bank of India) SEBI CCI NCLT BSE, and the National Stock Exchange of India as well as the shareholders.
V. Vaidyanathan the MD and CEO of IDFC FIRST Bank warmly welcomed IDFC Ltd shareholders who will become direct shareholders of IDFC FIRST Bank after the merger.
To provide some background IDFC Ltd has been an infrastructure financing domestic financial institution since 1997 and obtained in-principle approval from the RBI in April 2014 to establish a bank leading to the formation of IDFC Bank Ltd alongside Bandhan Bank. IDFC Bank commenced operations in October 2015 after the transfer of IDFC’s loan assets and liabilities.
Capital First Ltd a successful consumer and MSME financing institution since 2012 merged with IDFC Bank on December 18 2018 resulting in the renaming of the institution as IDFC First Bank. As of June 30 2023 IDFC Ltd holds a 39.93 percent shareholding in IDFC First Bank through its non-financial holding company.
IDFC First Bank is a full-service universal bank with a pan-India presence. It has witnessed significant growth in its deposit franchise reaching Rs. 136812 crore by March 31 2023 with a compound annual growth rate of 36 percent since the merger. The bank’s CASA ratio has also shown remarkable improvement increasing from 8.6 percent at the time of the merger in December 2018 to 49.77 percent by March 31, 2023. Furthermore, the bank has established 809 branches and 925 ATMs as of March 31 2023.
The merger ratio between IDFC First Bank and IDFC Ltd has been set at 155:100. Under the proposed reverse merger scheme, an IDFC shareholder will get 155 shares for every 100 shares she/he holds in the bank. Both stocks have a face value of Rs 10 each, IDFC First Bank said in a statement. As per audited financials as of March 31 2023 the bank expects a 4.9 percent increase in the book value per share post-merger.
The companies have already completed the necessary stages of corporate simplifications and are now preparing for the amalgamation with IDFC First Bank Limited. Their intention is to finalize the merger in the current financial year barring any unforeseen circumstances.
On February 1 IDFC Ltd announced its in-principle approval to invest approximately Rs 2200 crore in IDFC First Bank aiming to increase its equity holding from the current 36.38 percent to a maximum of 40 percent. This move aligns with RBI rules which stipulate that the non-operative financial holding company serving as the bank’s promoter should hold a minimum of 40 percent of the paid-up voting equity capital for a period of five years from the bank’s commencement date.
Stock Markets reactions-: The share price of IDFC First Bank experienced a sharp decline of over 5 percent on July 4 subsequent to the bank’s announcement regarding the share swap ratio for its merger with IDFC Ltd. An intriguing twist unfolded as IDFC Ltd shareholders were informed that they would receive 155 equity shares of IDFC First Bank for every 100 equity shares they held. This news brought about a certain level of bewilderment causing the market to react accordingly.
Interestingly based on the closing price as of July 3 IDFC shareholders were set to receive a premium of 17 percent. Remarkably the stock of IDFC Ltd had already rallied by 7 percent on Monday signifying a premium of 24 percent when compared to Friday’s closing price on June 30. This sudden surge in value demonstrated an uneven distribution of market sentiment raising perplexing questions about the nature of the merger.
In response to this peculiar turn of events IDFC Ltd experienced a 2 percent surge on July 4 suggesting that the risk-reward ratio favored the parent company. On the other hand, IDFC First Bank encountered a significant decline of 5 percent highlighting the market’s fluctuating perceptions and confounding investors.
At precisely 11:15 am the stock of IDFC First Bank was quoted at Rs 79.25 on the NSE indicating a decrease of 3.25 percent from the previous day’s close. This unexpected shift in value further intensified the sense of perplexity surrounding the merger and its implications.
