Shares of IDFC First Bank plunged nearly 6 per cent in Tuesday's trade while those of IDFC Limited gained over 6 per cent following the announcement of swap ratio for the proposed merger between the two entities, which is seen in favour of IDFC shareholders.
The share exchange ratio for the amalgamation of IDFC with IDFC First Bank shall be 155 equity shares of face value of Rs 10 of IDFC First Bank for every 100 equity shares of face value of Rs 10 of IDFC Limited.
The share swap ratio was in favour of target company (IDFC Ltd), Nuvama said adding that the swap ratio equates to 1.55 while Nuvama Alternative was building in 1.40 (worst case scenario) and 1.60 (best case scenario).
Shares of IDFC First Bank plunged 5.9 per cent to hit a low of Rs 77.10 on BSE. On the other hand, while IDFC shares rallied 6.04 per cent to hit a high of Rs 115.70 in early trade, they later cut gains to 0.46 per cent at Rs 109.60 apiece. Following the merger news, CLSA has maintained its underweight on IDFC First Bank with a target of Rs 85.
"We expect the spread to contract at Wednesday's opening itself, thus, we will recommend any spread trade only when spread is at adequate levels as per the merger closure timeline. Hypothetically, if spread is available at 13-14 per cent, then it’s a good level to enter but that looks unlikely to happen," Nuvama said in a note.
The IDFC-IDFC First Bank merger news came days after Housing Development Finance Corp Ltd merged with HDFC Bank in a $40-billion deal, the largest in India's corporate history.
The merger completion should take anywhere around 12 to 15 months from now. Nuvama cited recent two BFSI merger instances where the merger formalities took 12-15 minutes to complete. The first was the HDFC twins, which will get completed in 15 months. The second was the merger of Shriram Transport Finance Company and Shriram City Union Finance that got completed in 12 months
Also read: IDFC First Bank merger not to dent stock's MSCI inclusion prospects; $170-180 million inflows likely