IDFC’s investors are losing their patience as shares go nowhere
It is for everyone to see that infrastructure financier IDFC Ltd’s shares have been a wealth destructor. The stock has been on a downhill for the past five years, ever since India’s infrastructure projects became the bane of lenders by defaulting on loans. It has lost roughly 10%, which, if put in perspective against the broader Nifty’s gains of 100%, is reason enough for disillusionment among investors.
The angst among investors, which was visible in an informal call on Tuesday, was centred on the fact that the company has been tardy in unlocking value. One part was the expected reverse merger with IDFC First Bank Ltd, and the second was the sale of the mutual fund business.
The moot point is that investors are no longer satisfied with having just the crumbs of the value creator that is the bank. A reverse merger would give direct exposure.
“For every two shares of IDFC, we hold one share of the bank. The holding company discount has gone up to 70%, and there is no encashment of the AMC (asset management company)," pointed out a shareholder at the call. “As a shareholder of IDFC, we have suffered a big loss," he added.
Recall that IDFC First Bank came into being through a merger with Capital First Ltd in 2018. IDFC Ltd is a non-operating holding which in its present avatar holds the IDFC First Bank, a mutual fund business and the IDFC Foundation. But in its erstwhile form, IDFC had a complex structure.
During the informal call, chairman Vinod Rai explained that simplifying IDFC’s complex structure was one reason why value unlocking is taking time. Rai explained that most of the hindrances are now resolved or are on the verge of being resolved. The company will present options to investors of unlocking value at its annual general meeting next week, he said.
Even so, the frustration among investors was palpable given the performance of the shares.
As such, any regulatory hindrance to a reverse merger of IDFC with the bank was cleared in September last year when the five-year lock-in period for promoter shareholding came to an end. Banking regulation requires promoters to hold a minimum of 40% in a bank for the first five years.
But perhaps a sliver of the blame also lies with the investors.
“IDFC’s structure complication was known, and the other details can be easily found out in shareholder meetings. So, what were long-term holders of the stock waiting for?" asked an analyst, requesting anonymity.
Be that as it may, there seems to be a growing belief that the company’s management may finally spring into quick action. The annual general meeting that is scheduled to take place on 22 September may reveal the prospects.