ICICI Securities Delisting: Why the Surge in Mutual Fund Investments?

Several mutual funds made strategic investments in ICICI Securities in February, preceding a crucial shareholder vote determining the company's public listing status. The move raised eyebrows as funds purchased ICICI Securities shares at a premium compared to the value of ICICI Bank shares. Mutual funds bought ICICI Securities shares at a higher price than what they'd receive through the share swap if ICICI Securities gets delisted. Normally, for every 100 ICICI Securities shares, shareholders would get 67 ICICI Bank shares. But in February, ICICI Securities shares traded at a premium compared to this exchange rate. Volume weighted average price of ICICI Securities shares in February was around 0.79 times that of ICICI Bank shares and the closing prices of ICICI Securities shares ranged from 0.75 to 0.81 times that of ICICI Bank shares during the month. This means ICICI Securities shares were priced 12% to 21% higher than what the exchange rate suggests.

Rationale Behind Investments

Market observers speculate that mutual funds may anticipate the delisting proposal's failure justifying their bullish stance on ICICI Securities. By voting against the resolution, shareholders could potentially enhance the standalone brokerage entity's value leading to a surge in ICICI Securities share price. This sentiment was highlighted by a veteran at a leading asset management company.

When the share swap ratio was announced in June 2023, there was a ₹21 difference in value between ICICI Bank and ICICI Securities shares. This situation would have made it worthwhile for funds to buy ICICI Securities shares. They could then sell ICICI Bank shares to secure a risk free profit of ₹21 per share. This strategy, called special situation strategies allows funds to exploit price differences between the two companies without incurring taxes.

Funds Involved and Expert Opinion

Several prominent mutual funds including UTI Banking and Financial Services Fund, Kotak ELSS Tax Saver Scheme and Axis Quant Fund among others collectively invested over ₹75 crore in ICICI Securities shares in February. Interestingly, these funds previously had no exposure to ICICI Securities raising questions about their sudden interest and investment rationale.

ICICI Securities proposed delisting from public markets in June 2023 aiming to become a wholly owned subsidiary of ICICI Bank. The impending shareholder vote scheduled between 22nd and 26th March carries weight requiring over two thirds of votes cast in favor of the resolution for it to succeed. While leading proxy advisory firms have endorsed the delisting, opposition from retail shareholders disputing the valuation poses a challenge.

Despite some shareholders being uncertain experts believe that delisting could bring advantages for minority shareholders. Becoming a part of ICICI Bank could help smooth out the ups and downs of the broking business. It could also open up new opportunities like wealth management and lending through the bank. Nirav Karkera who heads research at Fisdom, expects the shareholder meeting to go smoothly making the delisting process easier.

Final Words

The combination of mutual fund investments shareholder actions and the proposed delisting of ICICI Securities highlights how intricate market decisions and investor feelings can be. As everyone waits for the important shareholder vote its result will determine what lies ahead for ICICI Securities. Moreover, it will impact how people view corporate changes and the rights of shareholders in the wider market.