IDFC goes to the market to save merger of its banking arm and Capital First

To save the merger deal between IDFC Bank and Capital First, the former’s parent company —IDFC — will make an open-market purchase of equity shares.

This is being done to comply with the RBI requirement on new bank licensing norms. At IDFC Bank’s current market price (₹57.20 at close on the BSE on Tuesday), IDFC may have to spend around ₹750 crore to buy up additional shares.

“IDFC will ensure that 40 per cent shareholding is maintained to meet the regulatory requirements. At current market prices, this investment would be around ₹750 crore,” IDFC told BusinessLine in response to email queries.

“The final approval of all shareholders of both the companies will be sought as per legal process,” it added.

IDFC Bank and Capital First entered into a merger deal, but given the swap ratio, IDFC’s stake in IDFC Bank fell below 40 per cent.

However, RBI rules state that the promoter entity of a new bank is required to maintain shareholding at a minimum of 40 per cent for five years.

IDFC Bank was licensed as a scheduled commercial bank in 2015. IDFC is thus required to maintain 40 per cent shareholding in IDFC Bank till 2020.

Under the agreement of the merger deal, Capital First shareholders will get 139 shares in IDFC Bank for every 10 shares held.

According to IiAS, a shareholder advisory firm, at that exchange ratio, IDFC’s holding in IDFC Bank would drop to 36.2 per cent. But IDFC said there was no need to rework the swap ratio.

IDFC Bank is seeking to shore up its retail business and has embarked on a merger deal with a non-banking finance company.

A $12 billion deal between IDFC and Shriram was called off last year following differences over valuations and the share-swap ratio.

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