Equitas Holdings likely to take bonus route to list Small Finance Bank

With just a month left for Equitas Holdings to list its banking arm Equitas Small Finance Bank (ESFB), sources say the company is working on ways to ensure that its shareholders do not suffer huge dilution in the listing process of ESFB. 

To do so, it is learnt that ESFB may issue bonus shares to its 100 per cent holding company — Equitas Holdings — in the ratio of 1:1. According to the current structure, ESFB would issue bonus shares to Equitas Holdings and the holding company will, in turn, transfer the rights on bonus shares to its shareholders. 

By this, the shareholders of Equitas Holdings will automatically become shareholders of ESFB. When ESFB goes for listing, shareholders of the holding company can opt for an exit. 

With reverse merger not being an option as per Reserve Bank of India (RBI) norms, this may offer the best exit for shareholders of Equity Holdings. 

“Equitas Holdings has sought the consent of Securities and Exchange Board of India (Sebi) and RBI to go ahead with this structure,” a source aware of the development says. 

People in the know say Equitas Holdings has applied for an extension of deadline to list ESFB, though RBI is yet to grant permission. “The response from Sebi is expected by early September,” says a highly placed source. 

According to the original timeline, Equitas has time till September 4 to list the small finance bank (SFB). This is according to the licensing norms governing SFBs, which require the parent company to list the SFB within three years from the commencement of banking operations. 

Going by this, listed peer Ujjivan Financial Services has time till January 31, 2020, to 

list its SFB. “If the regulators permit the structure proposed by Equitas, Ujjvan may also follow suit, given that both the holding companies have a similar structure,” says a highly placed source. 

Equitas is a widely-held company, with no traceable promoters. CDC and International Finance Corporation are the major foreign shareholders in Equitas Holdings, according to the June 2019 shareholding filings. Mutual funds and foreign institutional investors hold 37 per cent and 20 per cent shares, respectively. 

Sources also state that while issue of bonus shares may help provide a good exit for Equitas Holdings’ shareholders, ESFB will still have to list itself in the bourses to comply with licensing regulations. Equitas Holdings published its June quarter results on August 2. Net profit at Rs 62 crore grew by 75 per cent helped by 38 per cent growth in loans and advances. There was, however, no mention on listing its SFB, while Ujjivan Financial Services which also reported its Q1 numbers on the same day said they will list the SFB within the scheduled timelines. 
 

Equitas and Ujjivan were unavailable for comments.