Higher valuation in offing? IDFC-Shriram may announce new merger plan today

IDFC Ltd and Shriram Group are likely to announce a new plan of merger on Monday, improving upon the previous structure that faced resistance, mainly from shareholders of IDFC. 

The new plan, sources say, could be valuing IDFC higher than what was initially planned and a swap ratio now would be slightly beneficial to the IDFC shareholders, but Shriram shareholders may not lose out much as well.

According to an analyst, the new plan may involve not delisting the Shriram Transport Finance arm, as the share swap ratio was skewed because of the transport finance arm.

The original plan entailed merging the retail arm, Shriram City Union Finance, with IDFC Bank, unlisting Shriram Transport Finance and making it a fully-owned unit of IDFC and the holding company of the merged entity.

The government of India holds 16.38 per cent in IDFC Ltd. Other major foreign shareholders include Orbis Sicav, Platinum Asia Fund, Orbis Global, East Bridge Capital, and Sipadan Investments (Mauritius) Ltd, which is an arm of Malaysian sovereign wealth fund Khazanah Nasional Berhad. Sipadan holds 9.47 per cent in IDFC and the rest foreign shareholders own little more than 20 per cent. Akash Bhanshali of Enam Securities, and Ashish Dhawan, co-founder of Chrysalis Capital, are prominent individual shareholders of IDFC. 

Under the original plan, the government and Khazanah would witness sharp dilution in their stake, which they are averse of. IDFC and Shriram entered into an exclusive merger talk arrangement on July 8 to come up with a merger plan in 90 days. That period is long over as shareholders of both the firms could not agree on a share swap ratio. 

The shares of IDFC Ltd have risen 17.4 per cent since July 3, when the buzz about an impending merger was doing rounds in the market. However, after the plan was announced on July 8, analysts were not enthused and the stock fell. 

Since the plan involved the complete merger of Shriram Transport as an unlisted unit in Shriram Group, the shareholders of Shriram Transport had to be adequately compensated, which was the main hitch in arriving at a swap ratio, sources say.

The plan, accordingly, could not be submitted to the Reserve Bank of India (RBI) for approval. 

IDFC Bank shares closed 0.44 per cent down at Rs 56.95 a share on the BSE, IDFC Ltd closed 4.15 per cent down at Rs 63.55 a share, and Shriram Transport Finance shares closed up 3.62 per cent up at Rs 1,159.75 a share on Friday.