IDFC Bank announces merger with Capital First, V. Vaidyanathan to be CMD of new entity
Mumbai: IDFC Bank and non-banking finance company Capital First on Saturday announced a merger of the two businesses to form a combined entity of assets under management of Rs88,000 crore and distribution network of 194 branches. As per the agreement, IDFC Bank will issue 139 shares for every 10 shares of Capital First.
The board of directors of both financial institutions approved the merger in a meeting held on Saturday. However the deal is subject to regulatory approvals including from Reserve Bank of India (RBI) and Securities and Exchanges Board of India (Sebi).
As per the deal, V. Vaidyanathan, the chairman and managing director of Capital First, will succeed Rajiv Lal as the MD & chief executive officer of the combined entity. Lal will take on the role of the non-executive chairman of IDFC Bank, subject to regulatory approvals.
“This announcement is pursuant to IDFC Bank’s stated strategy of “retailising” its business to complete their transformation from a dedicated infrastructure financier to a well-diversified universal bank, and in line with Capital First’s stated intention and strategy to convert to a universal bank,” said the press release.
The merger with Capital First comes after IDFC Ltd’s failed attempt to merge Shriram Capital with itself last year, which had broken down over differences in valuation. Weighed down by an infrastructure loan book which constitutes nearly 50% of their loan portfolio, IDFC Bank has been trying to expand its retail footprint over the next 5 years. This deal will therefore help the bank leverage on Capital First’s customer base of 3 million retail and small & micro enterprise customers . As on September, Capital First’s loan book stood at Rs22,974 crore with a presence across 228 locations.
According to Reuters, the current deal values Capital First at Rs938.25 a share based on the two companies’ Friday closing price and giving the company a market value of Rs9,278 crore. That is a premium to Capital First’s Friday closing price of Rs837.50 or equal to market capitalisation of Rs8,300 crore, according to Reuters’s calculation.
“Main thing is that Capital First becomes perennial in nature. More than cost of funds, I think about stability of funds. The funding base becomes much more diversified compared to borrowing from banks and mutual funds. As far as they are concerned, to build a retail liability machine takes decades. You need to build network, collection capability etc. They get it ready made because they are largely an infrastructure corporate financing company. They get this piece ready,” Vaidyanathan.
The merger, once approved, will create a financial company with a market value of at least Rs31,285 crore.
As on Friday’s closing, shares of Capital rose 0.05% to Rs835.90 and those of IDFC Bank fell 1.3% to Rs67.65.
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