ICICI Bank: Why Canvassing Shareholders For Subsidiary Delisting Caused A Fracas
Social media has been abuzz with complaints from ICICI Securities shareholders who have received calls from ICICI Bank officials.
On Monday morning when 58-year old P Kumar was about to start his work day, he received a WhatsApp message from an unknown number. The person, claiming to be a branch manager from ICICI Bank, was requesting Kumar to vote in favour of a delisting proposal for the bank's subsidiary ICICI Securities.
Unclear on what was happening, Kumar decided to ignore the message. Soon though, he got a call from this person, who continued to push for the vote. In about an hour between 9:00 and 10:00 AM, Kumar was called three times, urging him to vote at the earliest.
"The person calling said that he is a branch manager from an ICICI Bank branch in Tirupathi. I had opened this bank account back when I was posted in the temple town between 2008-10. So I was surprised when I got the call," Kumar said.
The branch manager then sent a step-by-step process to follow for e-voting on the brokerage platform. After much hassle, Kumar followed the steps and voted for the delisting.
However, what caught Kumar's attention was a request from the branch manager to share screenshots of his vote.
Kumar is not the only one who experienced something like this.
Over the last few days, social media has been abuzz with complaints from ICICI Securities shareholders who have received calls from ICICI Bank officials, urging them to vote in favour of a proposal to delist the brokerage house and merge it with parent ICICI Bank. The bank owns 74.8% in ICICI Securities.
The proposal included a share swap ratio of two ICICI Bank shares for every three shares of ICICI Securities. The period of voting on the proposal commenced on March 22 and closed on Tuesday.
Chennai-based investor Vijay said that his wife and him started receiving calls a few weeks before the voting was to commence. While he initially ignored the calls, the intensity of calls rose over the last weekend.
"I immediately mentioned that I had cast the vote. They wanted to have the screenshot of the vote via SMS, Whatsapp, etc., which I declined to give. But they were persistent for screenshots," Vijay said.
Akshat Jain, an independent investor and a member of the Tamil Nadu Investor Association states that multiple shareholders have complained to the association about receiving calls.
"Relationship managers have personally visited people, the outreach agency reached out, ICICI Direct has been calling people, bank staff has been visiting people who are old, some staff have even been offering to cast vote for them on behalf of shareholders," Jain said.
According to a person aware of the developments, bank relationship managers do have ready access to a customer's investment accounts and the holdings they maintain. This is part of the bank's disclosure and privacy policy.
The Contention
While the discussion on the fairness of the swap ratio in the delisting of ICICI Securities has been a matter of hot debate, shareholder advisory firms have recommended a vote in favour.
It was not until Quantum Mutual Fund put out a note on March 22, explaining the rationale behind a vote against the proposal, that serious opposition started. The fund house holds 2.87 lakh shares in ICICI Securities, and 6.76 lakh shares in ICICI Bank.
In its note, the mutual fund explained that ICICI Securities listed on April 4, 2018 at Rs 432, which was a 17% 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 (a 146% premium to the current offer) based on the closing price for both the companies," Quantum Mutual Fund said in its note.
Even if the company was valued at the lowest PE multiple reflected in its peer set, the merger offer would have been at least 30% higher, it added. The current merger ratio transfers at a minimum Rs 1,780 crore to ICICI Bank shareholders from ICICI Securities minority shareholders.
"Problem 1 is ratio itself & second is that mechanism itself, where bank is calling investors & nudging them to call people in favour of such bad ratio and in favour of bank. It’s poor governance," said Ajit Dayal, founder of Quantum Advisors Prvt. Ltd.
According to the person quoted above, the swap ratio was determined after multiple valuation exercises by independent valuers.
"The argument that there is an independent valuation done sounds bogus. We should really question the quality of the valuation process conducted," said Manu Rishi Guptha, founder & CEO, MRG Capital. "With some level of certainty I can say that ICICI Securities shareholders would lose about Rs 700 per share, once this delisting process goes through at the current valuation".
As investors await the results of the voting process concluded on Tuesday, those opposing the transaction have started talking about legal options.
"There is a need to review the entire transaction and give shareholders what they are due," Guptha said.
Queries mailed to ICICI Bank and ICICI Securities were not responded to.
