Last Wednesday the combined entity of IDFC and the spin-off bank closed for trade at Rs 141. While the Management at the institution has no idea what idea what remain in IDFC and what goes to the Bank, various analysts had propagated a figure of IDFC-the holding company at Rs 80 and possibly the Bank to be listed at Rs 50-60. Either way, this would be the first instance where the sum of parts valuation of a Bank is higher than the break-up value, as post de-merger the investor could lose anywhere from 20 per cent to 40 per cent of his investment.
Worst has been the timing. Fixing Book Closure of October 5 2015, and last trading day of merged entity on Wednesday means that not only is the investor opening himself to a 3 day weekend risk, but additionally from Thursday last only the Holding company trades. Or in a vague basis the Bank portion will not list and trade till November 6. The latter is so close to the result of the Bihar Elections that any adverse result will mean all around losses for the entire Old Economy stocks including the IDFC Bank stock which will trade for the first time.
This brings into question the role of Sebi and the Stock Exchanges-if books of a high profile hybrid institution owned 80 per cent by DII/FIIs are vague and not subject to bifurcation then could they not have intervened and stopped the Bank creation inspite of the RBI approval. Why could IDFC not float a new Bank with a Rs 100 crore capital just like they have floated the securities, broking and mutual fund businesses, instead of carving out some assets from the existing institurion.
The latter could have been a better move. For what will IDFC Bank achieve with just 23 Branches. Even regional cooperative banks have more than 23 branches and they possibly fare as well. What is strange that RBI with the ex-IMF, Chicago Booth School Professor at the helm gave IDFC a Banking licence when they possibly did not deserve the same. See what is left inside the IDFC Holdings-all junked up gas, power and infrastructure assets.
When the NDA had set up this institution, the idea was to set up something unique with no baggage. But with Discom loans et al and the highest paid CEO in the counry Rajiv Lall-even this institution has gone the rEC/PFC way, with certainty of dues being solely dependent upon the mercy of States and the Central Government towards Gas plays and Discoms. Over 1 crore shares of IDFC got sold on Thursday about 60 per cent lower than the price of Wednesday. These funds are not going to come back and Buy an IDFC which is now more than a shell entity like IFCI. It would be a miracle if IDFC does not go down to Trade at Rs 20 leaving small investors and others with massive losses. The Bank will simply not be able to cover up the black hole in valuation lost
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