Two proxy advisory firms have given their thumbs up to the delisting of ICICI Securities even as many shareholders continue to band together to prevent the proposal from going through.
InGovern and Stakeholders Empowerment Services (SES) have given their ayes to the resolution that will see the brokerage firm become a fully owned subsidiary of its parent ICICI Bank. Shareholders will get 67 shares of ICICI Bank for every 100 ICICI Securities shares they hold.
The resolution now hangs in the balance, with investors getting a narrow window between 22 and 26 March to vote. Only minority shareholders of ICICI Securities, who collectively own 25.23% of the company, can vote on the resolution. ICICI Bank holds the remaining 74.77% shares of the company. To go through, the resolution needs more than two-thirds of the votes cast to be in its favour.
The verdict of proxy advisors assumes importance as nearly 17% of ICICI Securities shares are held by institutions like mutual funds, insurance companies and foreign portfolio investors. Institutional investors generally rely on the recommendations of proxy advisors when voting on company resolutions.
“The broking business is inherently volatile with revenue and profits being high during bullish times and getting depressed with bearish markets. By being offered shares of the comparatively stable shareholding in parent company, shareholders of (ICICI Securities) gain from enhanced liquidity and better price discovery,” InGovern noted in its report.
While proxy advisors have greenlighted the deal, many minority shareholders remain unhappy. Their bone of contention remains the valuation that the 67:100 swap ratio ascribes to the ICICI Securities shares.
“The valuation has been prepared by reputed independent valuers and confirmed by reputed investment bankers. A detailed valuation report has also been published and forms a part of the notice to the shareholders,” an ICICI Securities spokesperson said in response to Mint’s queries.
ICICI arrived at the swap ratio of 0.67 after independent valuations by PwC and EY. Both the consulting firms arrived at the swap ratio of 0.67. Further, ICICI Bank appointed JM Financial Ltd and ICICI Securities appointed BofA Securites India Ltd to provide their respective independent opinions.
In its report, InGovern noted that over six months before the resolution was declared, the average ratio of the volume weighted average price of the ICICI Securities stock to that of ICICI Bank was 0.54. The swap ratio of 0.67 translated to a premium of 24% over this, as per InGovern.
However, some investors believe that the delisting is being done at a lower valuation than the price at which ICICI Securities debuted the public markets in 2018.
“During the IPO, ICICI Securities shares were offered at more than 35x trailing earnings. Today, they are delisting at less than 17x of trailing 12 months earnings. They listed at the top of the cycle and now they are delisting at the bottom of the cycle,” said Vikrant Darak, chief executive officer of Finverse Ventures Pvt. Ltd, a Pune-based fintech firm, and a shareholder in ICICI Securities, who is against the delisting.
“If I have the option of holding on to this business, I will hold on to it forever. It’s a cash generating machine,” he said.
Darak believes that a fair value of the shares would be around ₹1,200-1,500, as opposed to ₹726 dictated by the swap ratio and ICICI Bank’s share price on Thursday.
Shares of ICICI Bank closed marginally higher at ₹1,083.5 on the BSE on Thursday. ICICI Securities lost 1.82% to close at ₹737.35. Sensex ended the session 0.46% in the green.
Many shareholders including Darak have come together on various public fora like WhatsApp, Twitter and Telegram to rally fellow investors against the delisting proposal. These investors are also trying to sway larger institutional shareholders.
ICICI Securities’ public shareholders include Norway’s Norges Bank Investment Management, the world’s biggest sovereign fund, which holds 3.2% of the company as of December-end. Life Insurance Corp. of India owns 2.58%, while Boston-based Fidelity, a large money manager with over $10 trillion in assets under management, owns 1.29%. The voting of these shareholders will have a huge say in whether the proposed delisting goes through.
