IDFC Bank, Capital First may announce merger today

IDFC Bank and nonbanking financial company (NBFC) Capital First are likely to announce a merger on Saturday, creating a larger institution with about Rs 1.4 lakh crore of assets and nearly 64 lakh customers. The union could also act as a springboard for IDFC Bank looking to quickly grow its assets, said two people familiar with the matter. 

"The boards are meeting tomorrow and something can be expected on the merger front," said one of the persons quoted above. "The merger ratio could be close to what the market prices are indicating since both are operating companies and there's not much scope to go beyond." 

Neither of the parties could be reached for comments. 

IDFC Bank scrapped a deal to merge with Shriram City Union last year as the two could not arrive at a consensus on valuations. 
HDFC Bank Personal Loan

While Shriram group founder R Thyagarajan indicated that the dialogue with IDFC could continue, this transaction with Capital First ends such hopes. 

The deal, if approved by the boards of the companies, could be a success for IDFC Bank chief Rajiv Lall who managed to get a bank licence in 2014. For V Vaidyanathan, the chairman and managing director of Capital First, it would be an opportunity to build a fullfledged bank after having built the NBFC with capital backing from Warburg Pincus. 

"For Capital First, the bank platform comes at the right time when the interest costs are rising," said the second person mentioned above. 

"It would be difficult to raise funds during rising rates, so the cost of funds becomes key. And that's where the merger is good for Capital First shareholders." 

Shares of Capital First are trading at 3.4 times price-to-book, while IDFC Bank is at 1.5 times. 

Capital First ended flat at Rs 835.9 with a market value of Rs 8,266 crore, while IDFC Bank fell 1.3% to Rs 67.65 with a market value of Rs 23,000 crore. The merger, if it goes through, will create a financial company with a market value of at least Rs 31,000 crore that will have businesses across all segments. 

The strength of Capital First, in which Warburg Pincus owns 36%, lies in lending to small and medium enterprises. It has built loan assets of Rs 22,974 crore as on September 30, 2017, with 93% of its loan assets in the consumer and MSME financing segments which yield the highest return among all segments of borrowers. The company reported profit after tax of Rs 78.3 crore in the second quarter of the financial year. 

Source: Economic Times