Shares of Equitas Holdings (EHL) and its subsidiary Equitas Small Finance Bank (ESFBL) rose as much as 10 per cent on the Bahrain Stock Exchange in trading during Tuesday after its board of directors approved the Monday merger.
The scheme proposes merging EHL into and with ESFBL and dissolving the converting company without liquidating, according to a regulatory filing.
The RBI guidelines also dictate that shares of SFBs are to be listed on stock exchanges within a three-year time period from the date on which their net worth reaches Rs 500 crore.
If the promoter of ESFB, i.e. EHL, owns more than 40 percent of the share capital in ESFBL, he must reduce his stake to 40 percent within a period of five years from the date of commencement of business of the bank (i.e., until September 4, 2021), the companies transferred this as the rationale behind the merger.
As per the merger scheme, each shareholder of the transferring company (ESFBL) will be allocated 231 shares of stock for every 100 shares of the transferring company (ESFBL).
EHL shares rose 10 per cent to Rs 119.15, while ESFBL rose 9 per cent to Rs 57.55 on the Bahrain Bourse on Tuesday. At 02:24 p.m. the two stocks had partially erased their intraday rally and rose 3 percent and 2 percent, respectively. By comparison, the S&P BSE Sensex was up 1 percent at 57,813 points.
ESFBL recently raised capital via QIP, primarily to meet SEBI’s requirement to increase the public shareholding to 25 percent and subsequently obtain approval for the merger.
“After complying with the public contribution criteria, we believe SEBI approval can come quickly unless it has any feedback on the evaluation methodology. After SEBI approval, other regulatory approvals, including NCLT, may take another 3-6 months. After that, they can For ESFBL to apply for a blanket banking license versus SFB’s existing restrictive license, analysts at Emkay Global Financial Services said.
“Overall, ESFBL has performed very well on liability with diversification of its asset base away from MFIs. However, as its asset quality has been weakened by the shock caused by Covid, it needs to focus on improving portfolio quality/mix as well as building Better buffers to supply “We believe that once the merger is complete, it will apply for a global banking license, which should be positive in the long run,” the brokerage said.