What is coming in the way of an easy division is IDFC’s asset management business. The sale of this unit could pave the way to the merger and it could also potentially mean a one-time dividend for the shareholders.
On the call, some shareholders suggested that a way to unlock value would be to sell the asset management business, distribute sale proceeds to shareholders and then merge the holding company into the bank.
Rai seemed to differ.
“This is one option to maximise shareholder value. Now the question is, what is the attraction we bring to that entity? If we have cashed out, distributed all the revenue earned from the sale of one entity, there is no attraction for the entity with whom you have sought our merger,” Rai told investors during the call. Without any capital on its books, the holding company would become less attractive for the bank as a merger candidate, he added.
Moreover, such a transaction would attract both capital gains tax for the entity and dividend distribution tax for the shareholders, Rai explained.
According to a senior analyst who spoke on conditions of anonymity, IDFC might be looking to keep the sale proceeds in the company till the merger is completed to get a better swap ratio with the bank. While this seems unfair to IDFC’s own shareholders, it would eventually help them with more favourable terms during the merger, the analyst said.
The sale process for the AMC had been in the works for nearly three years, but IDFC is yet to find a bidder at the desired price, the analyst quoted above said. In November 2018, Mint newspaper had reported that frontrunner Avendus Capital was willing to pay Rs 2,000 crore for IDFC’s asset management business, where the seller expected a valuation of Rs 3,500-4,000 crore.
Investors are now losing patience.
“By the end of this call we expect the board and management to share a clear timeline of when the AMC business would be sold. Even if the taxation is high, it is something the shareholders have to consider,” said Kela.