1:15 swap for ICICI, ITC Classic merger

MUMBAI, Dec 1: The boards of ICICI and ITC Classic Finance Ltd, meeting separately, on Monday approved the proposal for the merger of the s...

MUMBAI, Dec 1: The boards of ICICI and ITC Classic Finance Ltd, meeting separately, on Monday approved the proposal for the merger of the sick NBFC with the term lending institution, with effect from April 1, 1997. The share exchange ratio for the proposed merger has been fixed at one equity share of ICICI for 15 equity shares of ITC Classic.

The decision of the board of directors on the exchange ratio was based on the recommendations of leading chartered accountancy firms, C C Chokshi and Company and Bansi S Mehta and Company. The merger is subject to necessary approvals and due confirmation of the scheme of amalgamation by the Mumbai and Calcutta High Courts.

Defending the 1:15 share swap ratio, ICICI managing director and CEO K V Kamath said: "People should not talk about the market value of ITC Classic shares. The valuers had a very difficult exercise… here is a company whose shares are trading at twice the par value but the book value is negative. The share swap ratio is fair by any yardstick."

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Saurabh Mishra, director, ITC Classic, refused to comment on the merger, saying: "We have an understanding with our senior partner (ICICI). We are out of the picture now."

According to Kamath, the institution was under no pressure to bail out the sick NBFC. "Nobody has driven us to the deal. ITC approached us and we went ahead as it made business sense. About 75 per cent of our clientele is common and we will be able to recover a substantial amount of NPAs. It is a cash neutral deal and we will get the tax benefit as a little bit of gravy on the table," he said. ICICI will get Rs 110 crore worth of tax benefits over the next three years following the merger.

ITC Ltd, the major shareholder of ITC Classic, will infuse long-term funds amounting to Rs 350 crore into ITC Classic by way of preference capital of 20 year maturity carrying a nominal dividend of Rs 100 per preference share of face value of Rs one crore. This amount will be initially brought in as an interest-free advance of ITC Classic by January 11, 1998, and will be adjusted against the issue of preference capital of ICICI on sanction of the merger by necessary authorities.