Clix getting controlling stake after merger with LVB may have hurt deal

AION Capital-backed NBFC rues delays, missed opportunity in failed deal; sources say it was about to revise offer, but the Reserve Bank ran out of patience

AION Capital-backed non-banking financial company Clix Group was about to improve its initial offer for merging with Laxmi Vilas Bank (LVB). But, it was too late, because the move got derailed on Tuesday after the Reserve Bank of India (RBI) announced a draft deal for amalgamation of the financially stressed bank with DBS Bank.

However, the question remains: Why were the curtains pulled down on the Clix deal after six months of hectic, formal negotiations that navigated through many ups and downs, a new board, and the removal of the managing director?

After all, the LVB board had announced in June that it had signed a non-binding agreement for talks with Clix on amalgamation, though informal talks started as early as April. And, the deal was a no-brainer for an NBFC like Clix as entry into banking would aid its next phase of growth.

The NBFC followed through with a non-binding indicative offer in the first week of October. 

However, this came in the wake of a flurry of developments — the bank’s chief executive S Sunder and six directors were voted out, and a new of committee of directors with three members was appointed by RBI to oversee the negotiations. 

Those involved in the discussions say the indicative offer was structured in such a way that Clix shareholders would control 90 per cent of the merged entity. AION Capital, through its fund has an 85 per cent stake in Clix Capital, while the rest is divided between former Genpact boss Pramod Bhasin and Anil Chawla, former CEO of DE Shaw in India, among others.

The new committee of directors wanted Clix to improve its offer. And it was willing to bring down the stake to 85 per cent in the merged entity. It even added that it would raise funds to put another Rs 2,000 crore into the bank. 

Bhasin, when contacted, said he could not comment on the specifics of the deal. However, he admitted that the firm “would have had to raise more money for the transaction, whereas DBS has the capital and from that perspective, the regulator preferred DSB Bank India… it is understandable”.

Bhasin also said that there were many delays from the LVB side, they never told RBI anything one way or the other. “At some point the regulator may have thought, how long to wait for an answer”.

Another issue was that many existing large investors that together held influential stake — like IndiaBulls Housing, SREI group amongst others — were not very enthused with an offer where Clix would have virtual control over the bank.

“Some of the large investors were not in favour of relinquishing their shares to accommodate the merger with Clix,” said a person in the know. Bhasin says the deal Clix proposed would have effectively resulted in existing shareholders relinquishing significant value.

Even AION has gone through a major change. In June, ICICI Venture and Apollo Global Management, AION Capital’s JV partners, decided to part ways. Under the new arrangement, however, Apollo would now front-end the investments of the JV with inputs from ICICI Venture till the end of their term.

Also as the AION PE fund is fully invested, Clix had to look elsewhere for growth capital. 

To put the deal together Clix and AION roped in former IndusInd Bank managing director Romesh Sobti for advice. But it was clear that RBI was looking for a quick solution.

COD member Shakti Sinha says Clix’s loan book was Rs 4,200 crore, of which Rs 2,500 crore of loan assets were not banking compliant. These loans were unsecured and did not meet the risk-weights required for a bank. “These loans would have been okay for an NBFC, but for banking purposes, they would have required a lot more capital, which Clix was not in a position to infuse,” he says.