The investors are upset over the proposal to turn ICICI Securities into a wholly-owned subsidiary of parent ICICI Bank, and have made their displeasure clear for the first time in a public forum. They believe the company is better listed and are unhappy with the proposed share swap ratio.
The opinion of the public shareholders gains significance because ICICI Securities needs two-thirds of them, who own more than 25% of a share, to approve the transaction. Parent ICICI Bank owns a 74.85% stake in the company, with the rest held by public shareholders. The proposal was announced last June.
“I don’t see where these synergies are coming from,” Vikrant Darak, CEO of Finverse Ventures Pvt. Ltd, a Pune-based fintech company, and a shareholder of ICICI Securities, said on the call. “Nor in terms of technology – because I believe we are very superior in terms of technology to our peers. In terms of financial muscle, we are very well placed.”
ICICI Securities chief financial officer Harvinder Jaspal sought to explain the benefits of the transaction. “ICICI Bank is a source of affluent customers who have banking needs as well as personal finance needs. This is the kind of value proposition that both entities together can serve those customers,” Jaspal said. “All other bank-based entities (brokerages) have chosen to maintain securities trading as an unlisted business.”
A second person, who introduced himself as Vikram of Vikram Securities, was interrupted mid-question: “In September, you removed a complaint from Unifi Capital. What was the nature of that complaint? … We have reason to believe that they wrote to the entire board of directors for …”
Jaspal interrupted before Vikram could finish: “It’s a two-way communication. This call is specifically to discuss the earnings.” Added managing director and CEO of ICICI Securities Vijay Chandok: “My request is to keep your question limited to earnings.”
Analyst Darshan Engineer, portfolio manager at Karma Capital Advisors, questioned whether the delisting process had caused ICICI Securities to slow down its strategic initiatives.
The administration dismissed this concern. “Now, the markets are at an all-time high. Expect growth from here would not be right. I think, therefore, the note of caution. Nothing to do with removal,” said Chandok.
The share exchange ratio (67 shares of ICICI Securities for every 100 shares held in ICICI Bank) has also generated concern. “The exchange ratio appears to be on the downside. Investors would be better off selling shares of ICICI Securities and buying ICICI Bank from the open market today to get almost 20% upside,” said Shriram Subramanian, founder of proxy advisory firm InGovern Research Services.
In response to an email question from Minta spokesperson for ICICI Securities said: “There is no reconsideration as the scheme has been registered with NCLT (National Company Law Tribunal) as per the valuation ratio which has been approved by the boards after careful consideration supported by fairness assessment for all stakeholders. We also believe that the proposal is in long-term interest for the company and shareholders.”
Queries sent to ICICI Bank and Unifi Capital remained unanswered till press time.
Late last year, ICICI Securities responded to queries raised by Unifi Capital, a Chennai-based portfolio management services firm, and Bengaluru-based retail investor Soarabh Gupta. Gupta is a relative of Manu Rishi Gupta, who runs a Bengaluru-based investment fund, MRG Capital, who also expressed his unhappiness over the transaction.
Both Unifi Capital and Gupta have written to the nine-member board of ICICI Securities, expressing their displeasure with the proposed transaction.
ICICI Securities’ nine-member board is chaired by Vinod Kumar Dhall, a retired bureaucrat, and has two executive members, including Chandok and the head of investment banking and institutional equity, Ajay Saraf. The remaining five are independent directors.
Among ICICI Securities’ public shareholders, Norway’s Norges Bank Investment Management, the world’s largest sovereign wealth fund, is the largest, owning 3.2% as of December-end. Life Insurance Corp. of India, the second largest public shareholder, owns 2.58%. Boston-based Fidelity, a large money manager managing more than $10 trillion in assets under management, owns 1.29%, and California-headquartered Capital Group, which has $2.6 trillion in assets under management, owns 1.26%.
Darak of Finverse Ventures recounted Mint that investors are paying a premium on ICICI Securities shares because they believe they are worth more than the price dictated by the original 100:67 exchange ratio, and that this indicates that the market does not expect the transaction to receive investor support.
“The share price has risen significantly in the past year; therefore, minority investors should consider whether the business prospects of ISEC (ICICI Securities) are better than the prospects of a diversified portfolio of businesses at ICICI,” InGovern’s Subramanian said.
ICICI Securities expects the NCLT to approve the transaction, and this could take another three months, according to management. Reserve Bank of India, the BSE and the National Stock Exchange gave their nods in November.
The shares of ICICI Bank closed 0.64% at ₹986.6 on the BSE on Thursday, while ICICI shares closed 0.9% lower at ₹763.95. The latter’s shares have gained more than 23% in the past six months, and its shares trade at a premium of more than 15% on the price dictated by the 100:67 share exchange.
ICICI Securities, which counts 9.7 million customers, saw its revenue rise 50% from the year-ago period to ₹1,323.3 crore in the October-December period. Profits added up ₹465.7 crore, a 66% jump from the third quarter last year.