Equitas Small Finance and Ujjivan Small Finance Bank (SFB) stocks were in focus on Monday after the Reserve Bank of India (RBI) allowed SFBs and respective holding companies to apply for the amalgamation scheme ahead of the five year lock-in period.
Shares of Equitas SFB surged around 13% to ₹72 per share in early deals, whereas, Ujjivan shares also jumped around 7% to ₹33. Meanwhile, shares of the respective holding companies of the SFBs – Equitas Holding Ltd and Ujjivan Financial Services also skyrocketed 20% each on the BSE.
Both Equitas/Ujjivan are going to complete five years of business operations. Equitas and Ujjivan hold company currently owns around 82-83% stake in the underlying SFB respectively. ”Though the SFBs are required to dilute promoter shareholding to <40% within five years, but this scheme of amalgamation will give an exit route to the promoters and collapse the holding company structure,” Motilal Oswal said in a note.
The investors of holding company will get the shares of listed SFB through a share swap ratio and the holding companies will thus cease to exist. In this process, the approval of RBI, SEBI & NCLT is required.
Currently, holding companies of Equitas & Ujjivan Bank are trading at 35%/43% discount to their fair value. For Equitas Holdings, the trading discount since listing has been the range of ~24%-54% while for Ujjivan Financial Services, the holding discount has been in the range of 33%-57%, Motilal Oswal said.
”Thus, the amalgamation scheme would help unlock significant value for the shareholders of the respective holding companies as the holdco discount narrows. However, the fair value for the investors would depend on the swap ratio which would be key to monitor,” the brokerage added.
Even if RBI were to approve the scheme of amalgamation the approval of market regulator SEBI and other regulators will still be critical for the consummation of the scheme.
Equitas Holding Ltd, the promoter of Equitas Small Finance Bank, on Saturday said that the RBI has allowed it to file for a scheme of amalgamation of the promoter entity with the bank.
Separately, Ujjivan SFB on Saturday also said it would initiate steps for the amalgamation of the holding company Ujjivan Financial Services Ltd with the bank.
The decision to merge the holding company with itself comes after the RBI allowed SFBs to apply for amalgamation on completion of five years from the date of commencement of business.
In April this year, the Association of Small Finance Banks of India had made a representation to RBI to grant in-principal approval to small finance banks for reverse merger with their respective holding companies.
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