The board of directors and shareholders of Equitas Holdings Ltd (EHL) and Equitas Small Finance Bank (ESFB) on Monday approved the amalgamation scheme of the two companies.
The share exchange ratio would result in each shareholder of the transferor company, EHL, getting 226 equity shares of the transferee company, ESFB, for every 100 shares held by them in the holding company.
EHL (transferor company) is the promoter or the holding company of ESFB (transferee company).
Earlier this month, Equitas SFB had received Reserve Bank of India’s (RBI) nod to apply for amalgamation of the promoter into itself.
The intent of the amalgamation is to comply with the RBI norms on small finance banks, mandating the promoter to reduce the stake in the subsidiary to 40 per cent within five years of commencement of operations by the SFB.
As of June 30, 2021, EHL held 81.75 per cent stake in Equitas Small Finance Bank (ESFB).
According to RBI conditions laid down for SFBs in June 2016 and guidelines for licensing of SFBs in private sector in November 2014, “equity shares of SFBs should be listed on recognised stock exchange(s) in India within a time period of 3 years from the date the net worth of SFB reaches Rs 500 crore”.
In case of ESFB, the applicable date for listing was September 4, 2019. However, it commenced its banking operations with a net worth of more than Rs 500 crore.
The other condition requires that if a promoter holds more than 40 per cent stake in the subsidiary, it should be brought down to 40 per cent within a period of five years from commencements of banking operations. Here, the applicable date is September 4, 2021.
Compliance with regard to listing was honoured through an initial public officer (IPO) and listing of shares of ESFB on exchanges from November 2, 2020, they said.
“The amalgamation of EHL with ESFB and issue of shares to the shareholders of EHL in accordance with the scheme will also enable compliance with the minimum public shareholding requirement by ESFBL,” as per the stock exchange filings by EHL and ESFB.
The scheme contemplates the amalgamation of EHL into and with ESFB and the dissolution “without winding-up of the transferor company pursuant thereto”.
EHL had turnover of Rs 177.45 crore and total assets of Rs 1,787 crore as of March 31, 2021. ESFB had turnover of Rs 3,612.47 crore, while its total assets were worth over Rs 24,715.22 crore.
“The consideration/share exchange ratio for the scheme is based on the valuation report dated July 26, 2021 issued by Raghuraman Krishna Iyer, registered valuer. The committee of independent directors and the audit committee has also independently recommended the scheme, EHL and ESFB said in regulatory filings.
Sebi registered merchant banker JM Financial has provided fairness opinion on July 26, 2021 on the share exchange ratio for the shareholders of the company, they said.
The SFB licensing guideline also permits a promoter to exit from its SFB arm after completing the lock-in period of five years.
When the scheme comes into effect, “each of the equity shareholders of the transferor company as on the record date, without any further application or deed, shall be allotted 226 equity shares of Rs 10 each credited as fully paid-up of the transferee company in respect of every 100 equity shares of Rs 10 each fully paid-up held by them in the transferor company”, as per the filings by them.
EHL is a RBI registered non-deposit taking systemically important core investment company. ESFB is engaged in retail banking business with focus on micro finance, commercial vehicle finance, home loan, loan against property and corporate loan, as well as financing to individuals and micro & small enterprises.
EHL has two subsidiaries — ESFB and Equitas Technologies Pvt Ltd (ETPL). The latter is engaged in the business of freight aggregation.
The appointed date for the scheme is November 1, 2021 or other date fixed by the ESFB board.
The scheme is subject to approval from the RBI, Sebi, stock exchanges, NCLT as well as public shareholders and creditors of EHL and ESFBL.