IDBI MF promoted by IDBI Bank had to either be sold or merged with LIC MF, as under SEBI rules, a promoter cannot hold more than 10% stake in two mutual funds. Life Insurance Corporation of India (LIC), promoter of LIC MF, took a controlling stake in
T Ramakrishnan, MD, LIC Mutual Fund said, “As part of regulatory compliance, LIC MF has proposed to take over the schemes of IDBI MF, subject to regulatory approvals.” “This proposed plan acquisition transaction will result in Merger In similar schemes, wherein the unique schemes of IDBI MF will continue on stand-alone basis with the acquiring entity and the merger is under process.”
The evaluation has been completed and both sides will approach the Securities and Exchange Board of India later this month to initiate the process. A person speaking on condition of anonymity said the merger is expected to be completed this quarter.
Another person with knowledge of the schemes said, “There are some tax matters to be clarified as it is a merger of schemes and not a share sale as the promoter is the same.” “Hence 18% GST has to be included in the assessment. All the formalities will be completed by the end of the month.”
IDBI made two attempts to sell its mutual funds after LIC completed the acquisition of IDBI Bank. In November 2019, Kerala based non-banking finance company Muthoot Finance A share purchase agreement was signed to acquire IDBI MF for Rs 215 crore. However, after a wait of almost a year, the deal failed as the Reserve Bank of India (RBI)reserve Bank of India) did not give his consent.
The first person mentioned above said, “Thereafter an attempt was made to find another buyer but the valuation was not up to the mark, so it was thought that it is better to merge the plans with LIC MF.” “Both the companies have some synergy with strong IDBI MF on equity schemes and LIC MF on debt side, so it was thought that instead of selling it cheaply, why not merge it and make it stronger?”
Valuation of ₹ 215 crore given by
Cash is involved with IDBI MF. The latest deal will result in a cash discount in the company, which will be transferred to IDBI Bank. IDBI MF did not respond to an email seeking comment.
Kaustubh Belapurkar, Director (Fund Research), Morningstar India said, “The bouquet of products to be offered by the combined entity will grow exponentially and the total equity assets will increase.”
SEBI rules on classification of schemes stipulate that a fund house can have only one scheme in each category and any duplicates need to be consolidated. Hence, when the schemes do not overlap, the merger is best suited for the fund house. Both are relatively small in the ₹37.22 lakh crore mutual fund industry. LIC MF has assets of ₹17,195 crore and ranks 22nd out of 43, while IDBI MF has assets of ₹3,845 crore and is ranked 30th.
While LIC has a large presence in the debt and passive equity product space, IDBI MF is strong in the actively managed equity fund space. Some of the schemes in the equity sector – Large Cap, Large and Midcap, Tax Saver and Flexi Cap – are similar between the two. IDBI MF has focused on value, midcap, health care and small cap schemes, which are not present in the LIC portfolio.