The board of Lakshmi Vilas Bank on Friday approved the merger of the private sector lender with Indiabulls Housing Finance (IBH) through a share swap deal. The merger will help Indiabulls get access to low-cost stable funds and an entry into banking. The company, the nation’s second largest housing finance firm, had unsuccessfully applied for a banking licence in 2013.
The merger will also enable Tamil Nadu-based LVB to obtain a larger geographical presence.
The merged entity will have a net worth ₹19,472 crore and a loan book ₹l,23,393 crore for the nine months of FY19. Its employee strength will stand at over 14,300.
The shareholders of IBH will own 90.5 per cent of the amalgamated entity while those of LVB will hold the balance 9.5 per cent. Indiabulls founder and Chairman Sameer Gehlaut’s stake will come down from 21.5 per cent to 19.5 per cent. He will further bring his holding down to below 15 per cent before the merger is effective.
The amalgamation comes at a time when housing finance companies are facing liquidity issues and slowdown in loan disbursements after the IL&FS debacle.
Share swap ratio
“The share swap ratio of 0.14:1, or 14 shares of IBH for every 100 shares of LVB, has been agreed upon by the respective boards of directors,” LVB said in a regulatory filing, adding that the deal is subject to regulatory approvals, including that from the RBI.
The two are hopeful of obtaining approvals, going by the precedents — the merger of GRUH Finance with Bandhan Bank, Capital First with IDFC Bank and Bharat Financial Inclusion with IndusInd Bank.
“The appointed date for the scheme shall be January 1, 2018, or such other date as may be mutually agreed,” LVB said in the filing.
Gehlaut is proposed to take over as the Vice-Chairman of the amalgamated entity. IBH’s Vice-Chairman and Managing Director Gagan Banga and LVB’s Managing Director Parthasarathi Mukherjee are proposed to be Joint MDs.
LVB had total assets of ₹40,429 crore and capital and reserves of ₹2,328 crore as on March 31, 2018. IBH had a net worth of ₹17,792 crore and a loan book of ₹99,270 crore as on December 31, 2018 .
“The bank believes that the merger of such two organisations will unlock value.., will create a large and healthy diverse retail asset book, high capital base for strong growth, and a huge opportunity to foray into newer businesses,” LVB said, adding that IBH’s presence in the northern and western markets will expand the reach of the merged entity.
“The merged entity will be substantially capitalised …There was a handicap we were battling with, which gets removed by a large amount. The bank was looking to raise capital and bring in strategic partners,” Mukherjee told reporters, adding that LVB will shortly become a pan-India bank.
As a first step towards the proposed merger, IBH’s board has constituted a reorganisation committee headed by independent director and former RBI Deputy Governor SS Mundra.