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Shriram Group-IDFC Merger- Fall Recorded in Company Shares

Shares of companies of the Shriram Group and IDFC fell on Monday, amidst concerns on the complexities and regulatory hurdles of their proposed merger. The proposed merger was announced on Saturday by representatives of the two groups.

Jefferies observed that the final deal could potentially be complex given the involvement of three large listed entities. It noted that there could be issues in “having an NBFC and a bank under the same Non-Operative Financial Holding Company (NOHFC)”.

Shriram City Union Finance (SCUF) lost 5.56%, the biggest fall since January 31, and ended the session at Rs2,328.10. Shriram Transport (SHTF), on the other hand, fell by 3.33% and ended Monday’s session at Rs1,054.35. The share price of IDFC also fell 5.68% and ended the session at Rs56.50. However, the share price of IDBI Bank rose marginally by 0.69%.

The details of the deal will be worked out over the next three months and the merger would be subject to a host of approvals from regulators including Reserve Bank of India (RBI), Securities &Exchange Board of India (Sebi), and Insurance Regulatory and Development Authority of India (Irda).

Analysts also expect a reduction in the book value of IDFC Bank. “If merger swap is based on current prices and assuming that IDFC Bank will be the combined company, it will lead to 22% dilution in IDFC Bank’s book value and be neutral to earnings,” said Nomura in a note to investors.

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