Aditya Birla Capital, subsidiary Aditya Birla Finance to merge

Aditya Birla Capital is listed, while its wholly-owned arm Aditya Birla Finance is among the 15 upper-layer non-bank lenders mandated by the RBI to go public by September 2025. Merging with the listed parent averts the need for the subsidiary to be separately listed.

Aditya Birla Capital said the proposed merger will simplify the group’s structure, transform Aditya Birla Capital into a formidable operating non-banking finance company (NBFC) from a holding company, consolidate business and operational synergies, and reduce regulatory complexities.

“The proposed amalgamation will create a strong capital base for Aditya Birla Capital to grow its business and participate in India’s growth story, successfully fulfilling its commitment to empower the financial aspirations of millions of Indians,” Kumar Mangalam Birla, chairman of the Aditya Birla Group, said in a statement.

Birla said the financial services sector is the bedrock of India’s growth story. “Our financial services business has scaled smartly to emerge as a core growth engine for the Aditya Birla Group,” he said.

Aditya Birla Capital said that the amalgamation is subject to regulatory and other approvals. Following the merger, Aditya Birla Finance will be dissolved without being wound up.

The central bank classifies NBFCs into four layers based on size, activity and perceived risks. The upper layer comprises the likes of Tata Sons, LIC Housing Finance and Shriram Finance. According to an October 2021 circular by the RBI, all upper-layer NBFCs are required to go public within three years of classification, adopting disclosure standards akin to those of listed companies in the interim. Following this guideline, the RBI had released a list of such NBFCs in September 2022.

Experts said Aditya Birla Capital’s move is not an attemp to circumvent the RBI norms.

“This is not sidestepping of RBI regulation that mandates upper layer NBFCs to list within three years of being recognized as one,” said Asutosh Mishra, head of research, institutional equities, Ashika Stock Broking. “The subsidiary that is being absorbed was anyway accounted for in the listed parent. On top of that, Aditya Birla Capital could possibly rid themselves of the valuation discount that is associated with a holding company.”

The mandatory listing requirement has also thrown a curveball at the Tata Group. The Economic Times reported on 8 March that Tata Sons might be planning an internal restructuring to comply with the RBI norms. The report said the rejig could include transferring the holding in financial services company Tata Capital to another entity.

Vishakha Mulye, CEO, Aditya Birla Capital, told analysts on Monday that after the completion of the amalgamation, the assets and liabilities and the entire business of Aditya Birla Finance will be transferred to Aditya Birla Capital. “There will be no issuance of new shares, hence there will be no change in the shareholding of Aditya Birla Capital, which will be surviving entity and will get converted from a holding company to an operating NBFC with listed equity shares,” said Mulye.

The merger may take 9-12 months to take effect.

She said that as per regulation, NBFCs can hold up to 50% in insurance companies. While Aditya Birla Capital holds 46% in Aditya Birla Health Insurance, it owns 51% in Aditya Birla Sun Life Insurance. Therefore, once Aditya Birla Capital becomes an operating NBFC, its stake in the life insurance business would be a percentage point higher than what the RBI allows.

“We will request the RBI for permission and go by their guidance,” said Mulye.

Mulye will lead the combined entity, with Rakesh Singh, current CEO of Aditya Birla Finance, assuming the role of executive director and CEO (NBFC), subject to approvals.

As of 31 December, Aditya Birla Finance had total assets worth ₹1.04 trillion, while Aditya Birla Capital reported assets of ₹13,495.47 crore.

On Monday, shares of Aditya Birla Capital closed at ₹179.65 apiece on BSE, down 1.32% from their previous close. The merger announcement came after market hours.

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Published: 11 Mar 2024, 05:38 PM IST