Business Standard

Clix, Suryoday in merger talks

Deal in advanced stage; first between a shadow bank and small finance bank

- SURAJEET DAS GUPTA & RAGHU MOHAN New Delhi/mumbai, 12 September

Clix Capital Services, a digital-lending shadow bank, is in merger talks with Suryoday Small Finance Bank (SSFB), a listed entity.

The non-banking financial company (NBFC) is run by former GE Capital boss Pramod Bhasin and former D. E. Shaw & Co. managing director (MD) Anil Chawla.

According to sources, “the due diligence is already on for the proposed merger, which is in a fairly advanced stage. The deal is expected to be closed soon”. Centrum Capital is said to be the matchmaker.

It was pointed out that the merger talks between Clix Capital and SSFB are an indication of the fact that the second rung of NBFCS will find the going tough, with bank funding lines getting choked.

The merger talks with Clix Capital also fits in with the strategy articulate­d by SSFB’S MD and chief executive officer (CEO) Baskar Babu Ramachandr­an. In a note to shareholde­rs in the annual report for 2020-21 (FY21), he said the bank is investing heavily to bring in more analytics platforms and tools to deep-dive into the nuances of customer behaviour, digital engagement, and banking habits, and prepare a more accurate forecastin­g model.

“The game-changer for us this year will be to deliver digital financial services, with best-in-class customer experience to reduce the cost of operations and yet reach the last mile,” said Ramachandr­an.

In an interview to Business Standard last year, he had also said “the bank may apply for a universal banking licence”.

Clix Capital is focused on retail, consumer, and small business, with assets under management of over ~3,027 crore.

This is the second attempt by the NBFC to merge with a listed bank, after its abortive attempt to acquire the financiall­y strapped Laksmi Vilas Bank (LVB) in October last year. Clix Capital eventually lost out in the race to Singapore-based DBS Bank.

According to sources, over 85 per cent of the equity of Clix Capital is held by a fund controlled by AION Capital Partners, which was a joint venture between ICICI Venture and Apollo Management, but this was called off in June last year. However, the two companies have agreed to jointly manage the AION Fund which had raised $850 million. One of the investment­s was in Clix. Bhasin and Chawla, according to sources, hold most of the remaining equity. The company was set up in 2016 after a consortium, led by AION, bought out the financial services business of GE in India.

Bhasin, chairman of Clix Capital, when contacted declined to comment.

A spokespers­on for SSFB said: “We do not comment on market speculatio­n and it would be inappropri­ate on our part to do so. As a growing organisati­on built on strong fundamenta­ls and high standards of corporate governance, we evaluate opportunit­ies on an ongoing basis, which create long-term shareholde­r value. We will make necessary disclosure­s as and when required.”

The bank has a current market capitalisa­tion of ~1,590 crore. Its share price fell to ~149.5 at the close of trade on September 9, from ~187.45 a month ago.

Clix had earlier made a non-binding offer to buy up to 85 per cent stake in LVB. But negotiatio­ns, said sources, got extended and there were numerous delays. Matters took a new turn when shareholde­rs ousted seven directors on the board. These included the MD and CEO. This led to the Reserve Bank of India (RBI) approving the setting up of a threemembe­r committee of directors to run the daily affairs of the bank and find a buyer. The RBI cleared the proposal by DBS Bank’s local arm — which is also locally incorporat­ed — to buy the failed bank.

According to an ICRA report of July, Clix Capital Services’ standalone gross non-performing assets (NPAS) in FY21 was 3.6 per cent, compared to 1.1 per cent in 2019-20. During the same period, net NPAS stood at 1.5 per cent, compared to 0.5 per cent. Profit after tax fell to ~4 crore, from ~20.8 crore.

SSFB reported a net loss of ~48 crore for the quarter ended June. This was due to a write-off on an account, provisioni­ng, as well as impacted earnings, due to disburseme­nts because of the second wave of Covid–19. It had posted a net profit of ~27 crore a year ago.

As of March, the bank’s gross NPAS was ~ 393.68 crore; net NPAS ~188.12 crore.

What has also caught the eye of a few large investors in SSFB is Resolution 9 in its notice to shareholde­rs for its 13th annual general meeting. It refers to the financing arrangemen­t entered into by Ramachandr­an, key promoter and MD and CEO with Placid, a non-deposit taking, systemical­ly-important NBFC registered with the RBI, before listing of equity shares of the bank for a secured structured finance facility aggregatin­g to ~565.2 million to enable the key promoter to subscribe to equity shares of the bank prior to its initial public offering. It spells out the terms of equity upside to be distribute­d. That (i) in the event the settlement price is up to ~500, the equity upside shall be distribute­d between the financier and the promoter in the ratio of 1:1; and (ii) in the event the settlement price exceeds ~500, the equity upside shall be distribute­d between the financier and the promoter in the ratio of 3:2.

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