While the company awaits approval from Securities Exchange Board of India (SEBI) on a certain scheme of arrangement that has been proposed by Equitas SFB, the possibility of listing shares of the SFB through an IPO also exists. A few weeks back, Ujjivan Financial Services proposed to list its SFB through IPO.
For investors of Equitas Holding and Ujjivan Financial, the risk of listing the SFB is that they not only become vulnerable to a huge ‘holding company’ discount but also face the threat of further stake dilution as the holding companies
have to reduce their stake in the SFBs to 40 per cent within five years from start of operations. For Equitas, analysts expect this discount to be 50–80 per cent given that the SFB is its only key subsidiary. The Street typically assigns a discount to the real value of a business, if held indirectly through subsidiaries.
Analysts also point out that as Equitas SFB is well-capitalised (over 22 per cent capital adequacy ratio in March 2019) an IPO to comply with regulatory requirements could be detrimental to shareholder’s return profile.
Therefore, in the coming days, while details on listing Equitas SFB could bring clarity to investors, they may still be stuck with a value depletive investment. Equitas Holding stock trades at nearly 20 per cent discount to its listing price and has corrected 15 per cent since October 25 last year, when the SFB listing issue first surfaced.