In a somewhat surprise announcement, IDFC First bank (IDFB) has announced a significant fund raise.
- Rs 7,500 cr raise has been announced for 15% dilution.
- Rs 4,876 cr from Warburg Pincus for 9.8%
- Rs 2,624 cr from Abu Dhabi Investment Authority (ADIA) for 5.1%
- Instrument is Convertible Cumulative Preference Shares of face value of Rs 10 each (CCPS), at a price of Rs 60 per CCPS
- Previous day’s share closing price was Rs 63.3/ share
- The raise would increase the overall capital adequacy from 16.1% to 18.9%
(Warburg Pincus has been a believer in the current management for long. They had originally supported the management when they had started as Capital First).
On the face of it there doesn’t seem that there was a real need for this raise. Reasons could be –
- shore up resources in a deposit constrained environment
- bank’s recent internal challenges (hit to capital) due to microfinance
- get renowned institutional long term capital commitment
Shareholders of IDFB have rejected the proposal to allow one board seat to Warburg Pincus.
The special resolution, which required at least 75% of votes in favour to pass, received only 64.10% approval.
Pushback came mainly from the institutional shareholders; 51% of their votes opposed the resolution.
The rejection of Warburg’s board nomination raises questions about investor concerns within the bank and the long-term alignment between private equity stakeholders and public shareholders.
Unlikely that this development would have any significant impact on the fund raise and/ or the fundamentals of the bank.
Some key terms of the CCPS mentioned in the quarterly earnings call.
There are no additional significant terms that investors need to be aware about