Hell hath no fury like angry shareholders. Ask Vinod Rai or Sunil Kakar. Rai, the former chairman of finance company IDFC Ltd, was booted out of his post at the financial institution’s annual general meeting (AGM) on 22 September. A week prior, at the company’s 14 September pre-AGM gathering, Rai and Kakar, the managing director and chief executive officer (CEO) at IDFC, were hauled over the coals by irate shareholders. 

They were upset by the delays in value-unlocking at the company. Some shareholders even threatened to oust Rai and Kakar if they did not set a deadline for this. Accusations flew thick and fast, with a pocket of shareholders even accusing Rai and Kakar of going slow due to the fat pay packets and commissions that came with maintaining the status quo. 

The flare-ups had their desired effect—things have moved fast at IDFC since. In September, the board approved the sale of its mutual funds business, IDFC Asset Management Company (AMC). The company appointed Citigroup as the investment banker for the deal. 

On 25 October, IDFC sent a letter to IDFC First Bank regarding the value-unlocking, seeking its views. Some shareholders, though, aren’t convinced by this. “The management is now keen to be seen doing something, anything. The letter is a joke, for optics. With a 36% stake, IDFC should have laid out definitive steps,” one shareholder, who runs a portfolio management service (PMS) firm, told The Ken

The Ken has learnt from a reliable source that IDFC First Bank responded to IDFC’s letter. Appreciating the goodwill and relationship between the two entities, it sought IDFC’s guidance on the desired next steps. That’s polite-speak for, ‘Sorry, it’s your baby’. Predictably, the ball is back in IDFC’s court again. IDFC has not yet disclosed the bank’s response to the stock exchanges.

With a nearly 100% stake in IDFC AMC, and about 36% stake in IDFC First Bank, IDFC is essentially a promoter holding company. It derives its value almost entirely from these two investments, which it holds through IDFC FHC, a non-operational financial holding company. Most other businesses of IDFC, including its private equity and broking arms, have been wound down or sold over the years. 

This structure is less than ideal for shareholders, with IDFC shares lagging badly on the bourses because of a big holding company discount of close to 50%. For a long time now, shareholders have hoped for the sale of the unlisted AMC and a reverse merger of IDFC into the listed IDFC First Bank. This is expected to remove the holding company discount and give IDFC’s shareholders the returns they yearn for.

It’s easy to understand shareholders’ impatience. The Reserve Bank of India (RBI) had mandated that IDFC hold at least a 40% stake in IDFC First Bank for five years.

AUTHOR

Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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