ICICI Securities Bid Adieu To Bourses With Retail Capital

The final nod to the merger for the brokerage with the parent private lender resulted in retail resentment. On Thursday, 27 March, publicly listed brokerage, ICICI Securities (ISec) received the approval from shareholders to merge with the ICICI Bank. 

In its shareholders meeting, 84.6 per cent of public shareholders voted in favour of the merger, whereas 15.3 per cent of public shareholders resisted the merger. 

Hence, the public institution successfully voted out the opposite party to influence the merger. However, among public non-institutional shareholders, only 32 per cent voiced approval.

As per stock exchange data, foreign and domestic institutional investors collectively hold 16.68 per cent of the broking firm, while non-institutional public shareholders maintain an 8.55 per cent stake as of 31 December 2023.

The firms are alleged to manipulate and influence the vote by reaching the retail shareholders. However, it defended the allegations in a regulatory filing and said, “ICICI Bank and ICICI Securities have been undertaking efforts to reach out to equity shareholders to explain the proposed Scheme and the e-voting process with the primary objective of maximising participation in the vote.”

Under the terms of the agreement, shareholders of ICICI Securities are slated to receive 67 shares of ICICI Bank for every 100 shares held in ICICI Securities.

ICICI Bank holds a 75 per cent stake in the Isec, which seemed to be on the lucrative side of the merger. However, Quantum Mutual Fund (QMF), which holds a 0.21 per cent stake, expressed certain apprehensions. 

“ISec listed at Rs 432, which was a 17 per cent discount to its IPO price of Rs 520. Had a reverse merger swap ratio set on the day of its listing, the ratio would have been set at 1.65 ICICI Bank shares for every 1 share of ICICI securities (around 140 per cent premium to the current offer) based on the closing price for both the companies,” stated QMF. 

The current swap ratio values ICICI securities at a 30 per cent to 77 per cent discount to its other listed peers based on consensus earnings forecast for the fiscal year ending March 2024, highlighted QMF. 

The current merger ratio transfers at a minimum Rs 17.8 billion to ICICI Bank shareholders from ISec minority shareholders.

Quantum Long Term Equity Value Fund and Quantum ELSS Tax Saver Fund own shares in ICICI Bank and ICICI Securities. Henceforth, the merger will result in a net loss of at least Rs 60.8 million to QMF unit holders.

The brokerage's Rs 4,017 crore initial public offering (IPO) subscription met with the aftermath of a 17 per cent loss on listing as the issue debuted at Rs 432 against the issue price of Rs 520.

“The proposal was against the shareholders' expectation in terms of swap ratio. Even the objective of ISec IPO was to unlock value for shareholders while the delisting is net opposite to their objective and creating value for the bank. Markets were expecting the proposal would be rejected by shareholders but unfortunately, ICICI Bank managed to get approval from all mines,” said Prashanth Tapse, Senior VP (Research), Mehta Equities.  

As per the current business environment and peer valuations, Isec is valued below its fair market price which could have been around Rs 950 to 1000 levels, added Tapse. He further recommended the shareholder move to Sebi for reconsideration and allowing revoting from shareholders, added Tapse. 

In its six-year-long journey on the bourses, the stock delivered around 68 per cent returns, whereas the benchmark index Nifty and Sensex delivered almost two-fold returns of approximately 120 per cent in the same period. 

Conversely, the listed peers Angel One, Motilal Oswal Finance and Nuvama Wealth Management delivered multi-bagger returns in the last five years.