Equitas Holdings, Equitas SFB gain on board approval for merger plan

As per the scheme of amalgamation, each equity shareholder of Equitas Holdings will be allotted 231 equity shares for every 100 shares of Equitas SFB.

Shares of Equitas Holdings (EHL) and its subsidiary Equitas Small Finance Bank (ESFBL) gained up to 10 per cent on the BSE in Tuesday’s intra-day trade after their respective boards approved the merger of the two.

The scheme proposes the amalgamation of EHL into and with ESFBL and the dissolution without winding-up of the transferor company, according to a regulatory filing.

The Reserve Bank of India (RBI) guidelines also mandate that shares of SFBs should be listed on stock exchanges within a time period of three years from the date when their net worth reaches Rs 500 crore.  

If the promoter of ESFB, i.e, EHL holds more than 40 per cent of equity shares in ESFBL, then it should reduce its stake to 40 per cent within a period of five years from the date of commencement of business of the bank (i.e., up to September 04, 2021), the companies quoted this as the rationale behind the merger.

As per the scheme of amalgamation, each equity shareholder of the transferor company (EHL) will be allotted 231 equity shares for every 100 shares of the transferee company (ESFBL).

EHL rallied 10 per cent to Rs 119.15, while ESFBL gained 9 per cent to Rs 57.55 on the BSE in Tuesday’s trade. At 02:24 pm; the two stocks had partially erased their intra-day rally and were up 3 per cent and 2 per cent, respectively. In comparison, the S&P BSE Sensex was up 1 per cent at 57,813 points.

ESFBL had recently raised capital via QIP, mainly to meet SEBI’s requirement to increase public shareholding to 25 per cent and then seek approval for the amalgamation.

"Post the public shareholding norm compliance, we believe SEBI approval could come swiftly unless it has any observation on the valuation methodology. Post SEBI approval, other regulatory approvals, including NCLT, may take another 3-6m. Thereafter, ESFBL can apply for a universal banking licence vs. the current restrictive SFB licence," analysts at Emkay Global Financial Services said.

“Overall, ESFBL has done very well on the liability front while diversifying its asset base away from MFIs. However, since its asset quality has weakened due to the Covid-induced shock, it needs to focus on improving the portfolio quality/mix as well as building better provisioning buffers. We believe that once the merger is completed, it will apply for a universal banking licence, which should be long-term positive,” the brokerage firm said.