Equitas, Ujjivan SFB shares surge today. What merger with holding companies mean for investors

Equitas, Ujjivan SFB shares surge today. What merger with holding companies mean for investors

Equitas Small Finance and Ujjivan Small Finance Bank (SFB) stocks were in focus on Monday after the Reserve Bank of India (RBI) allowed SFBs and respective holding companies to apply for the amalgamation scheme ahead of the five year lock-in period.

Shares of Equitas SFB surged around 13% to ₹72 per share in early deals, whereas, Ujjivan shares also jumped around 7% to ₹33. Meanwhile, shares of the respective holding companies of the SFBs - Equitas Holding Ltd and Ujjivan Financial Services also skyrocketed 20% each on the BSE.

Both Equitas/Ujjivan are going to complete five years of business operations. Equitas and Ujjivan hold company currently owns around 82-83% stake in the underlying SFB respectively. ‘‘Though the SFBs are required to dilute promoter shareholding to <40% within five years, but this scheme of amalgamation will give an exit route to the promoters and collapse the holding company structure,’’ Motilal Oswal said in a note.

The investors of holding company will get the shares of listed SFB through a share swap ratio and the holding companies will thus cease to exist. In this process, the approval of RBI, SEBI & NCLT is required.

Currently, holding companies of Equitas & Ujjivan Bank are trading at 35%/43% discount to their fair value. For Equitas Holdings, the trading discount since listing has been the range of ~24%-54% while for Ujjivan Financial Services, the holding discount has been in the range of 33%-57%, Motilal Oswal said.

‘‘Thus, the amalgamation scheme would help unlock significant value for the shareholders of the respective holding companies as the holdco discount narrows. However, the fair value for the investors would depend on the swap ratio which would be key to monitor,’’ the brokerage added.

Even if RBI were to approve the scheme of amalgamation the approval of market regulator SEBI and other regulators will still be critical for the consummation of the scheme.

Equitas Holding Ltd, the promoter of Equitas Small Finance Bank, on Saturday said that the RBI has allowed it to file for a scheme of amalgamation of the promoter entity with the bank.

Separately, Ujjivan SFB on Saturday also said it would initiate steps for the amalgamation of the holding company Ujjivan Financial Services Ltd with the bank.

The decision to merge the holding company with itself comes after the RBI allowed SFBs to apply for amalgamation on completion of five years from the date of commencement of business.

In April this year, the Association of Small Finance Banks of India had made a representation to RBI to grant in-principal approval to small finance banks for reverse merger with their respective holding companies.

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Ujjivan Financial, Equitas Holdings hit upper circuit. Here’s why

Did you Know? Stock score of Equitas Holdings Ltd moved up by 4 in 3 months on a 10-point scale. View Latest Stock Report »

New Delhi: Shares of the promoters of two small finance banks - Ujjivan Financial Services and- hit their upper circuit limits in early trade on Monday. Both the counters were buzzing on the back of a reverse merger.Equitas Holdings, the promoter of Equitas Small Finance Bank (SFB), said the bank has received Reserve Bank of India’s (RBI) nod to apply for amalgamation of the promoter into itself.Similarly, the green signal from the banking regulator has paved the way for Ujjivan Financial Services, which is likely to be unified with the Ujjivan Small Finance Bank.Shares of Ujjivan Financial Services and Equitas Holdings surged 20 per cent each, their daily circuit limits, to Rs 244.90 and Rs 138.40, respectively, on Monday. BSE Sensex was trading 0.38 per cent higher at the time of writing this report.As per the SFB licensing guidelines of RBI, a promoter of SFB can exit or cease to be a promoter after the mandatory initial lock-in period of five years (initial promoter lock-in) depending on RBI’s regulatory and supervisory comfort and SEBI regulations at that time.“In case of Equitas Small Finance Bank (the bank), our subsidiary for which the company is the promoter, the said initial promoter lock-in for the company expires on September 4, 2021,” it said in a regulatory filing.The bank had requested RBI if a scheme of amalgamation of the promoter company with the bank, resulting in exit of the promoter, can be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the initial promoter lock-in expires.

Bulk Deals | Tamarind Capital sells 69 lakh shares in Dhani Services, Aberdeen offloads 10 lakh shares in Ujjivan Financial

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Aberdeen Global Asian Smaller Companies Fund sold 10,05,335 equity shares in Ujjivan Financial Services (or 0.82 percent of total paid up equity) at Rs 203.83 per share on the NSE, the bulk deals data showed on July 7.

Aberdeen Standard SICAV I - Asian Smaller Companies Fund held 14,45,464 equity shares (1.19 percent of total paid up equity), and Aberdeen Standard Asia Focus Plc had 2.51 percent shareholding in Ujjivan Financial Services as of March 2021.

Among other deals, private equity firm Tamarind Capital Pte Ltd sold additional 69 lakh equity shares in Dhani Services at Rs 182.85 per share.

Tamarind had sold 69.85 lakh equity shares on July 6, at a price of Rs 174.11 per share.

Employees Retirement System of Texas - Self Managed Portfolio bought 4,26,311 equity shares in HG Infra Engineering at Rs 472.23 per share.

Alpha Leon Enterprises LLP sold 8,02,167 equity shares in Uttam Galva Steels at Rs 4.05 per equity share.