Indiabulls Financial Services Pvt Ltd (IFS) on Friday announced plans to merge itself with its fully owned subsidiary Indiabulls Housing Finance Ltd (IHF) in order to consolidate capital with the fast-growing housing finance business in its portfolio.
The commercial vehicle finance business, the loan against property and corporate loans businesses of the non-banking financial arm will be transferred to a separate entity.
In this reverse merger, shareholders of IFS will get one share of the subsidiary company for each held in the listed non-banking finance company. The listed entity will be renamed as IHF and will continue to be traded on the bourses.
“There were regulatory restrictions on the amount of capital infusion into the housing finance company and hence to make an efficient use of capital and to consolidate balance sheets, the merger will take place,” Gagan Banga, chief executive officer of Indiabulls Financial Services said over phone.
Last year there were market rumours that financial investors will pick up strategic stake in IFS. Banga however denied any such plans.
The promoters of Indiabulls Financial will infuse Rs 451 crore (~$90 million) of capital into the company in the form of warrants convertible into equity shares at Rs 218 each.
Analysts believe the move will help the company grow its core business faster with more capital for the housing finance business.
“The company wants to be a pure mortgage player and the consolidation is in line with that strategy. The company’s other non-core business segments such as commercial vehicle loans (10 per cent its book), loan against property (30 per cent) and corporate loans that constitute 2-3 per cent will be carved out into a new subsidiary,” said Laxmi Ahuja, senior analyst covering banking and financials at Mumbai-based brokerage Marwari Shares and Finance Ltd.
IFS went public in 2004 at Rs 19 per share. On Friday its shares closed at Rs 234, up 4.39 per cent on the Bombay Stock Exchange. IFS has seen contraction in operating profit margins, down to 82.55 per cent in the March quarter from 87.42 per cent from December quarter.
IFS with a network of 176 branches across 100 cities has cumulative loan disbursements of over Rs 60,000 crore and has a net worth of Rs 5,035 crore with an asset size of Rs 25,081 crore.