Equitas Holdings and Equitas SFB Amalgamation
The proposed amalgamation of Equitas Holding and Equitas Small Finance Bank (SFB) was already on the cards after RBI consented to reverse merger of bank holding companies after 5 years of operations. During the week, the amalgamation of Equitas Holdings and Equitas SFB was approved by their respective boards.
Merger model of Equitas Holdings and Equitas SFB
This is not a merger, but a reverse merger. Equitas Holdings is the holding company with 81.7% stake in Equitas SFB. Since Equitas SFB has the small bank license, it is Equitas Holdings that will have to merge into Equitas SFB. Under the terms of the merger, Equitas SFB will issue 226 shares to the shareholders of Equitas Holdings, for every 100 they held.
The plan entails the "dissolution without winding-up" of Equitas Holdings after its merger with Equitas SFB. The merger is subject to regulatory approvals but should be completed by 01 November. After amalgamation, Equitas Holdings will cease to exist and Equitas SFB will be the surviving company.
Why is the Equitas merger so important?
There are 3 reasons that this merger makes business sense.
1. Firstly, holding companies have to reduce their stake in banks and SFBs to below 40%. This either leads to loss of control or dilution of capital. These risks can be avoided via the reverse merger route.
2. Secondly, RBI clarified that holding companies can exit their stake in banks once it completes 5 years of operation. Holding companies are free to sell out after that.
3. Finally, the holding company discount which is the bane of most holding companies can be avoided via this reverse merger.
The Equitas merger will set the tone for other similar structures like Ujjivan and IDFC to also go for a similar kind of arrangement.
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