Four prominent proxy advisory firms—InGovern, SES, IiAS and ISS-- have favoured the scheme of arrangement that proposed delisting of equity shares of ICICI Securities by issuing equity shares of its parent, ICICI Bank, to the shareholders of ICICI Securities. By virtue of the delisting, ICICI Securities will become a wholly-owned subsidiary of ICICI Bank.
In separate notes, these advisory firms have recommended the special resolution that proposed delisting of shares of ICICI Securities. The shareholders of ICICI Bank and ICICI Securities are slated to meet on March 27, 2024 separately to transact the proposed scheme.
Under the proposed scheme, the public shareholders of ICICI Securities will receive 67 equity shares of ICICI Bank for every 100 equity shares held in ICICI Securities. The proposed scheme of arrangement has been approved by the Board of Directors of both companies, and stock exchanges.
According to InGovern, over a period of six months prior to the date of announcement of delisting i.e. from December 28, 2022 to June 28, 2023, the average ratio of VWAP (Volume-Weighted Average Price) of ICICI Securities stock price to the VWAP of ICICI Bank stock price is 0.54. The proposed swap ratio of 0.67 represents a premium of 24.07% to this. The VWAP ratio during the period from June 28, 2023 to March 9, 2024 is 0.70 which closely mirrors the swap ratio offered by the company to its shareholders, said the InGovern report.
The InGovern report also added that the broking business is inherently volatile. By being offered shares of the comparatively stable shareholding in the parent company, shareholders of ICICI Securities gain from enhanced liquidity and better price discovery.
The combined entity with the strategic imperative of combining wealth management, broking services with banking services will fuel growth and profitability, the InGovern report added.
SES said that in the case of listed companies, the market price is the best measure for determining fairness of any exchange ratio, provided that shares of both the entities have liquidity on exchanges where they are listed and nature of entity is not changing drastically, say from a PSU to private, or MNC etc. In this case, both the shares are liquid and ownership remains with the public at large with no change in the nature of ownership.
In order to estimate the fairness of the exchange ratio, SES has considered the undisturbed share price data of both the companies for a year preceding the scheme intimation date.
The average ratio of market share prices of ICICI Securities to ICICI Bank for the preceding year stood at 0.56 times, whereas the proposed share swap ratio is 0.67:1. Hence, it appears that shareholders of ICICI Securities are paid a slight premium vis-à-vis the market price differential. The ratio of price as on date of valuation report was close to 0.67 considering the undisturbed price, setting aside the minor difference based on average price, according to SES.
According to IiAS, banks in India mostly run broking business through privately held arms. To this extent, delisting of ICICI Securities and keeping it as a separate legal entity within the ICICI Bank fold will align it with market practices, it added.
The international advisory firm ISS said, given the cyclical nature of ICICI Securities’ business, being part of ICICI Bank with a larger customer ecosystem could bring stability to the stock broking company’s financial performance.
The merger is expected to capitalise on the synergies between ICICI Bank and ICICI Securities, driving operational efficiencies and streamlining processes. With ICICI Securities set to become a wholly-owned subsidiary of ICICI Bank, the combined entity aims to better capitalise on the synergies of ICICI Bank.
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