IDFC Ltd. Faces Shareholder Ire On Delay In Value Unlocking

IDFC Ltd., the holding company of IDFC First Bank Ltd., faced a set of irate shareholders as Non-Executive Chairman Vinod Rai addressed an investor call on Tuesday. Shareholders questioned the delay in value unlocking, which Rai blamed on the complex structure of IDFC.

It was a huge task to unwind the complex corporate structure, said Rai. At present, IDFC Ltd. has the asset management company and IDFC Foundation under it. “We have now received a letter from the Reserve Bank of India allowing the promoter to reduce stake in the bank and other institutions,” Rai said.

IDFC Ltd. has engaged an external adviser for divestment in non-core companies, keeping in mind the maximisation of shareholder value, Rai said.

In July, the RBI had permitted institutions such as small finance banks among others, to merge with their holding companies. At the time, analysts said IDFC Ltd. and IDFC First Bank would benefit from such a reverse merger as well.

The fact that IDFC Ltd. has businesses other than the bank under it may delay any such consolidation.

“Some of you have suggested that after we sell the business (AMC) we merge with another entity. This is one option to maximise shareholder value,” Rai said. “Now the 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.”

According to Rai, after the disinvestment in the AMC business and distribution of sale proceeds among shareholders, the merger with IDFC First Bank will not happen. “...instead of adding value to the shareholders, we will be destroying value for the shareholders.”

Shareholders on the call, however, continued to raise questions on the delay in value unlocking and underperformance of the stock.

It is frustrating to be a shareholder of IDFC Ltd., said Madhusudhan Kela, founder of MK Ventures. There has been a lot of wealth destruction as the stock has declined 20% since 2015, he said. Some timeline, according to Kela, should be provided to shareholder for sale of the asset management business.

Apart from the AMC, IDFC Foundation, which has tie-ups with two state governments, is also under IDFC Ltd. This cannot be included in the reverse merger, Rai said.

Other shareholders also questioned the recent re-designation of Vinod Rai as non-independent chairman of IDFC Ltd. Rai was independent director of IDFC for two terms. He was reappointed as non-independent director in May with shareholder approval being sought for the same.

"The board and the nomination and remuneration committee felt it is in the best interest of the company to ensure continuity of Vinod Rai's tenure," said Ajay Sondhi, chairman of the NRC. The technical process of Rai's resignation and appointment was discussed by the board with legal counsel and all regulations and corporate governance processes were followed, Sondhi added.

In response to the questions, Rai said shareholder queries would be addressed in the upcoming annual general meeting. The board also intends to put up a set of suggestions on how to address the concerns, Rai said. The AGM is scheduled for Sept. 22, 2021.