Blog

IBHSGFIN-LAKSHVILAS merger - Yet another transition of NBFC into universal banking license
Comments0

 
In a strategic move, Indiabulls Housing Finance (IBULHSGFIN) has announced a merger with 569-branch strong south-India based regional bank Lakshmi Vilas Bank (LAKSHVILAS)
 
Why the sudden deal?
 
IBULHSGFIN has been vocal about its banking aspirations in order to scale up its business model. The recent liquidity challenges amid NBFC crisis tested its resilience. This catalysed IBULHSGFIN’s merger with a universal banking platform (LAKSHVILAS).  Share swap ratio of 0.14:1 (14 shares of IBULHSGFIN for every 100 shares of LAKSHVILAS) has been agreed upon by respective boards of directors. 
 
Management concall details
 
1. Deal is within the purview of existing policy framework of bank merging into NBFC/HFC or NBFC/HFC into bank. The deal is along the lines for other mergers announced between banks and NBFCs over the past 18 months such as Gruh finance & Bandhan Bank, Capital First & IDFC Bank and Bharat Financial & Indusind Bank.
 
2. LVB has been breaching PCA norms on most parameters. Even after the QIP issue of INR4600 cr, its CAR was only 7.95% and the bank has been reporting losses and has a net NPL ratio of 7.5%. The RBI wants to save this bank (& not let it go under the PCA framework) and be taken over by a strong player. Two RBI directors on LVB’s board supported the merger though RBI denied giving implicit approval for the merger as per press notification released on weekend.
 
3. IBULHSGFIN has the experience of floating a bank in London, namely OakNorth which has been scaled up well and demonstrated successful execution. It largely does SME lending and Indiabulls has two nominee directors on the board that advised OakNorth in SME financing.
 
4. Promoter shareholding would come down to 19.5% in the merged entity (from 21%) and will be less than 15% before the deal is executed. 
 
The way forward
 
Once shareholders approve the proposal, a 30-day process, management would apply to the RBI immediately, which is expected to come back in 4–8 weeks.  Company has conveyed that there will be no retrenchment and all employees will be absorbed. IBULHSGFIN has maintained no change in the borrowing plans for FY20, neither earnings growth of 17-18%.
 

Author Image

Comment

Recent Post

  • PC Jeweller Demerges its Expo..

    What’s the deal? PC Jewelers recently announced that it would demerge its Export Division and merge with its wholly owned subsidiary - PCJ Gems & Jewellery Limited. Company c..

  • Insurance- Introduction

    Risk and uncertainty are associated with life in some of the other ways. These risks and uncertainties are increasing daily because of the increment in the speed of life. For example, i..

  • Rail Vikas Nigam Ltd. IPO

      Offer Details Price band Rs 17-19 Per Equity Share Offer Open Date Mar 29, 2019 Offer Close Date Apr 03, 2019 Lot Size..

  • Tech Mahindra Buyback

    The Board of Directors of Tech Mahindra Ltd. approved a share buyback for its investors on Feb 21, 2019. The details of the buyback include: Ex-Date: March 5th, 2019 Record Date: Marc..

  • BHEL Buyback

    The Board of Directors of BHEL approved a share buyback for its investors on Oct 25, 2018. The details of the buyback include:  Record Date: November 6th, 2018 Buyback price: Rs...