INDIABULLS TO DEMERGE BROKING BUSINESS

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INDIABULLS Financial Services (IBFSL), one of the country’s leading NBFCs, is demerging its securities brokerage business into a separate company and taking full control of two other subsidiaries by buying out the stakes of steel king LN Mittal and American hedge fund Farallon Capital.

IBFSL will spin off its 100% subsidiary Indiabulls Securities in a stock market transaction. IBFSL investors will get shares of the broking company once it is listed. The board of IBFSL has approved the move in a meeting on Sunday.

The move is aimed at preparing IBFSL for a possible entry into the country’s booming banking sector either by buying a stake in an existing bank or converting itself into one. As long as the broking business is a part of IBFSL, getting permission from the Reserve Bank of India for a banking entry will always be difficult.

Last year, the firm’s bid for buying the ailing United Western Bank was not considered by RBI. IBFSL is hoping that by divesting the broking business and turning itself into a pure consumer finance player will improve its chances.

In another development, Indiabulls is merging Indiabulls Credit Services with itself and is buying US-based hedge fund Farallon Capital’s 33% stake in Indiabulls Housing Finance.

IBFSL now owns 53% of Indiabulls Credit Services, while the rest is owned by Farallon and LN Mittal. Farallon and Mr Mittal will be offered shares in IBFSL after a swap ratio is fixed. Mr Mittal’s stake in IBFSL, now at about 2%, is expected to increase sharply to about 8% after the merger.

Indiabulls Credit Services does consumer finance and credit card business.

After this merger and the demerger of the broking business, IBFSL will become a pure finance firm with presence in loans against shares, consumer finance, loans against property, funding of small and medium enterprises and commercial vehicle loans with a combined asset book of Rs 2,800 crore and capital of Rs 2,000 crore.

Indiabulls Housing Finance, where Farallon owns 33%, is also being taken over fully by IBFSL. The company is buying out Farallon’s stake at a 20% premium over its original purchase price of Rs 112 per share.

The initiatives are expected to help investors get a clearer picture of Indiabulls’ various businesses and help boost the valuations of each business. The broking business is expected to generate a profit of Rs 350 crore on a turnover of Rs 1,000 crore by 2008. Indiabulls’ shares rose 8.51% to Rs 420.05 on Friday. The shares have rise 23.16% over the week and 36.98% over the past month.

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