New Delhi, Aug 19, 2015
Shardul Amarchand Mangaldas & Co. (SAM & Co.) advised IDFC on its demerger.
Net worth of IDFC Bank on the effective date (subsequent to vesting of financial undertaking and capitalisation) would be approximately Rs. 13,825 crores (approx. US$ 2.165 billion). Net worth of residual IDFC would be approximately Rs. 10,514 crores (approx. US$ 1.646 billion).
The SAM & Co. team was led by Executive Chairman Mr. Shardul Shroff. The key partners were Mr. Raghubir Menon and Mr. Anirudh Das. The supporting team included Mr. Manu Krishnan, Principal Associate, Ms. Natashaa Shroff, Principal Associate, Mr. Aashish Gupta, Principal Associate Designate, Ms. Neha Udeshi, Mr. Taranjeet Singh, Ms. Deepa Rekha and Mr. Arjun Pall, Associates.
IDFC had received an in principle approval from the Reserve Bank of India (“RBI”) to operate as a bank. Pursuant to the conditions set out under the RBI guidelines for licensing of new banks, IDFC had to revise its organisation structure for IDFC Bank and for its other businesses under a non-operating financial holding company. Accordingly, IDFC decided to demerge its financial undertaking to IDFC Bank through a scheme of arrangement and separately, transfer the shares of its subsidiaries which undertake other regulated financial services business to its non-operating financial holding company.
Upon effectiveness of the scheme of arrangement, IDFC Bank will commence operations as a RBI licensed bank after having received the financial undertaking from IDFC and shall be listed on the NSE and the BSE.
SAM & Co. advised IDFC in relation to:
a) Reviewing the indebtedness of IDFC (which included domestic lenders, ECB lenders and bond holders) to identify lender approval requirements
b) Structuring of the reorganisation of IDFC in compliance with the RBI guidelines for licensing of new banks and applicable SEBI and company law
c) Competition law concerns, protection against hostile takeovers, intellectual property rights in IDFC marks, transfer of employees, transfer of fixed assets, transfer of loan portfolio and security interest, SEBI requirements for demergers of listed companies, process and timelines for demerger and other aspects of the demerger
d) Preparation of scheme of arrangement between IDFC and IDFC Bank, preparation of all documents for filing of scheme of arrangement with SEBI, BSE (designated stock exchange) and the Madras High Court and preparation of presentations for board of directors and investors of IDFC
e) Appearing in Madras High Court in relation to the scheme of arrangement between IDFC and IDFC Bank and briefing senior counsels
The demerger was sanctioned by the Madras High Court on 25 July 2015 and the scheme is expected to be Effective in October 2015.
Innovative Features of the deal :
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SAM & Co. assisted in procuring a detailed opinion on stamp duty laws applicable to a demerger scheme, analysing laws of Maharashtra and Tamil Nadu covering absence of notified charging provisions in Tamil Nadu, bringing the scheme of arrangement to Maharashtra for transfer of property located in the state and other related to issue of shares pursuant the scheme of arrangement.
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SAM & Co. advised IDFC on protection against hostile takeovers by introducing provisions in its articles of association. IDFC is listed NBFC, holding company and promoter of IDFC Bank and does not have an identifiable promoter shareholder. As such IDFC could be at the risk of being taken over (which could result in an indirect takeover of IDFC Bank) and we advised them on how we could build in provisions in the articles of association which could trigger in case of a hostile takeover of IDFC. We advised IDFC on how to protect the intellectual property in the IDFC marks in case of a hostile takeover.
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SAM & Co. advised IDFC on how the transfer of employees, fixed assets, and its loan portfolio (including security interests) would be transferred and vested pursuant to a scheme of arrangement.
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SAM & Co. advised IDFC on the process for transfer of the long term infrastructure bonds (under Section 80CCF of the Income Tax Act 1961) issued by it to IDFC Bank. This involved providing advice on issuing notices to bondholders to inform them of the scheme, obtaining the consent of bondholders, obtaining the consent of the government of India and RBI for the transfer of the bonds to IDFC Bank.
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SAM & Co. advised IDFC in relation to converting all indebtedness of the financial undertaking from secured to unsecured pursuant to the scheme of arrangement.
Deloitte Haskins & Sells LLP acted as tax advisor. SSPA & Co acted as chartered accountants. JM Financial provided the fairness opinion on the share entitlement ratio adopted under the scheme.
