Industrial Credit and Investment Corporation of India Ltd (ICICI) yesterday stepped in to rescue beleaguered non-bank finance company ITC Classic Finance Ltd, announcing a merger between the two companies.
The respective boards of the two companies will meet on December 1 to consider the merger. Market sources are speculating that the swap ratio will range between 10: 1 and 15:1, that is, one share of ICICI for every 10-15 shares of ITC Classic.
After the announcement of the merger, ITC Classics share price declined to Rs 19.45 against Tuesdays close of Rs 21.50. ICICIs scrip rose marginally on the news from Tuesdays close of Rs 72.50 to Rs 73.25.
The merger appears to be a win-win situation for ICICI, said analysts. Not only does the merger with ITC Classic provide a tax shelter for ICICI, ITC Ltd has also agreed to pump in long term funds, said one analyst.
ITC Classic had posted a net loss of Rs 285 crore for the year ended 1996-97. In order to avail of the tax shelter, it was decided to merge ITC Classic with ICICI and not with I-Credit, the non-bank finance company promoted by ICICI, ICICI officials told Business Standard.
As part of the revival package, ITC Ltd has agreed to infuse funds amounting to Rs 350 crore into ITC Classic by way of preference capital of 20-year maturity, carrying a nominal dividend of 0.01 per cent.
In addition, ITC has undertaken to ensure that ITC Classic disengages its intra-group assets. The sale of these assets either to ITC or to any other investors will infuse Rs 220 crore into ITC Classic.
On the asset side, ICICI officials said it would acquire leased and other assets which have been carefully assessed while evaluating the condition of ITC Classic.
An ICICI press release said given the size constraint and the high finance cost inherent in non-banking finance companies, the viable option for ITC Classic was to a merge with a strong and healthy financial intermediary which is geared to take advantage of the opportunities in the financial sector. While this infusion of long-term capital will restore the financial health of ITC Classic, the rapidly changing financial sector makes it imperative to develop a long term strategic plan for ITC Classic, said the ICICI press release.
We expect to consolidate our position in the financial market through the acquisition of ITC Classic, said an ICICI official. Synergy would also be achieved on account of the common clientele between the two companies.
The merger is expected to provide comfort to ITC Classics seven lakh retail depositors. At the same time, the merger will add 10 branches and 12 franchisees to ICICIs retail network.