The Industrial Credit and Investment Corporation of India Ltd (ICICI) is expected to avail a tax benefit of around Rs 46 crore, while its level of non performing assets would increase by around 0.3 per cent, subsequent to the ICICI-ITC Classic Finance merger. The paid up capital of ICICI will increase by Rs 2.4 crore.
This was disclosed by N Vaghul, chairman, ICICI, while chairing the extraordinary general meeting (EGM) of shareholders in Mumbai to consider the amalgamation and pass relevant resolutions. Vaghul appraised the shareholders about the impact of the merger on the ICICI balance sheet. He also defended the swap ratio of 1 share of ICICI for every 15 shares of ITC Classic.
ITC Classic has substandard assets to the tune of Rs 350 crore while its standard assets amount to Rs 550 crore.
Hence, the company is putting in Rs 350 crore by subscribing to 20-year preference shares issued by ICICI. The net present value of this investment is Rs 40 crore and ICICI hopes to recover at least 10 per cent of the sub standard assets.
The resolutions were passed without much dissent. Voting on the resolutions was taken up after the meeting and the results will be announced today. It is expected that the passing of the resolutions and approval to the merger is only a formality.
While Vaghul was of the opinion that the Indian financial sector would be witness to many more mergers, he downplayed the importance of the merger when viewed in terms of size.
His rationale was that ICICI had a asset base of Rs 41,000 crore, while in the case of ITC Classic, it was slightly more than Rs 1,000 crore. He said that ICICI would benefit by taking over the retail network of ITC Classic.
Replying to a question from one of the shareholders, Vaghul said that there was no injunction against the merger. On the issue of absorption ITC Classic employees, he said that ICICI was screening the employees and would absorb whoever fitted the bill. He said those employees who are not absorbed by ICICI would be the responsibility of ITC.
The shareholders were informed that a suitable scheme was being worked out, which would be announced shortly.
