Some investors may oppose ICICI’s bid to delist broking arm

Mumbai: Private lender ICICI Bank‘s proposed bid to delist its broking and investment bank arm might face opposition from a section of the shareholders. While some investors think the conditions to delist ICICI Securities do not favour public shareholders, lawyers are raising questions about the capital markets regulator Securities and Exchange Board of India’s (Sebi) decision to grant some exemptions from the conventional delisting process.

“The minority shareholders of ICICI Securities are being gravely wronged by the delisting, that is, besides being unfair in every sense (valuation, methodology & logic), defies the basic grain of propriety,” said Manu Rishi Gupta, founder of MRG Capital, a Bengaluru-based investment fund, in an open letter. He claims to be a shareholder of ICICI Securities.

Private lender ICICI Bank said in June it will delist ICICI Securities in a share swap deal. For every 100 shares held, public shareholders in ICICI Securities will get 67 shares of ICICI Bank

“The exchange ratio offered is gravely unfair towards minority shareholders… during the ICICI Securities IPO in 2018, the company offered shares at a valuation of 30 times trailing earnings while delisting now, ICICI Bank is offering just 18 times FY23 earnings,” said Gupta.

The ₹4,000-crore initial public offer of ICICI Securities in April 2018 was subscribed 0.78 times. The stock listed at ₹431 compared to its issue price of ₹520, after which it plunged to a low of ₹188 on February 5, 2019. The stock gained 2.4% on Thursday to close at ₹635.55.

Another shareholder Norges Bank – Norway’s government pension fund manager – which owns a 3.13% stake in the firm could vote against the delisting proposal, according to Moneycontrol. Email queries to Sebi and Norges Bank went unanswered until Thursday press time.

An ICICI Bank spokesperson said the delisting will benefit ICICI Securities’ public shareholders as the bank would provide them “access to a much larger and more diversified business with greater stability in revenue unlike the securities business which is inherently cyclical”.”The public shareholders would also be part of a more liquid stock of the bank,” said the ICICI spokesperson. “Given the Bank’s strong financial position, the volatility in ICICI Securities’ share price, market opportunity, and business synergies between the two companies, delisting ICICI Securities and it becoming a wholly-owned subsidiary company would be beneficial to the shareholders.”

Foreign portfolio investors (FPIs) held a 9.48% stake in ICICI Securities as of June 30, 2023, while domestic institutions and retail investors owned 5.08% and 10.60% stake, respectively.

In its scheme of arrangement document for the delisting on June 29, ICICI Securities said, “While there are business synergies between the Bank and the Company, a consolidation by way of merger is not permissible on account of regulatory restrictions on the Bank from undertaking securities broking business departmentally.”

The delisting will require the approval of two-thirds of the majority of ICICI Securities’ public shareholders as per Sebi regulations. “This provides a strong regulatory safeguard to ensure that public shareholders have the final decision on such matters,” said the ICICI Bank spokesperson.

Lawyers said Sebi’s decision to grant an exemption to delist without the conventional price discovery process raises concerns.

“Circumventing established legal frameworks designed to ensure transparency and protect minority shareholders, this move could set a concerning legal precedent,” said Sonam Chandwani, managing partner, KS Legal & Associates. “It places an onus on regulators to clarify how exemptions of this nature align with existing laws and creates a potential future battleground for legal challenges from shareholders or competing institutions.”

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