In a rare instance of investor activism by an asset management company, Quantum Mutual Fund has written to the markets regulator objecting to the delisting of ICICI Securities Ltd on grounds of unfair valuation for the brokerage’s minority shareholders.

The asset management company, in a letter to the Securities and Exchange Board of India (Sebi), also objected to employees of ICICI Bank Ltd allegedly reaching out to ICICI Securities shareholders urging them to vote in favour of the delisting, which sailed through despite opposition from some investors.

ICICI Securities last month held a shareholder vote on the proposal to delist the company from the bourses and make it a 100% subsidiary of parent ICICI Bank. Presently, ICICI Bank holds 74.77% of the brokerage.  

The resolution got shareholder nod with just under 72% of the votes cast in favour of the delisting against a minimum requirement of 66.7% favourable votes.  

Shareholders will now get 67 shares of ICICI Bank for every 100 ICICI Securities shares they hold.  

In its letter, Quantum said that the swap ratio assigns a valuation to ICICI Securities that is at a discount of 30-77% to its listed peers. 

This will result in a loss of 6.1 crore to the unit holders of Quantum Mutual Fund and a loss of about 1,777 crore to all minority shareholders of ICICI Securities, Quantum alleged in its letter, which is addressed also to ICICI Bank and ICICI Securities. 

Quantum Mutual Fund holds about 0.09% in ICICI Securities through Quantum Long Term Equity Fund and Quantum ELSS Tax Saver Fund.

ICICI Bank and ICICI Securities did not respond to Mint’s emails seeking comment. 

“It is apparent that the Valuation Reports have not only ignored current market peer comparison data but also fail to disclose the basis of the valuation and the information based on which the Valuation Reports have been made,” Quantum states in its letter.  

While ICICI Securities trades at 15.7 times its price-to-earnings ratio, brokerages Angel One Ltd, 360 One, and Anand Rathi Wealth trade at PE multiples of 20.4 times, 34.2 times, and 70.1 times, respectively, as per the data cited in Quantum’s letter. 

The swap ratio was declared in June last year and was arrived at independently by PwC Business Consulting Services LLP and Ernst & Young Merchant Banking Services LLP. Further, ICICI Bank had appointed JM Financial Ltd and ICICI Securities had appointed BofA Securities India Ltd to provide a fairness opinion on the ratio. 

“Prior to the voting, we were shocked to learn that the management of ICICI Bank was contacting the retail shareholders of ISEC and coaxing them to vote in favour of the Scheme of Merger,” Quantum further said in its letter. 

ICICI Bank employees had reached out to ICICI Securities shareholders to urge them to vote on the delisting proposal, Mint had earlier reported. This led to an outcry from investors, who raised concerns about their private information being shared by ICICI Securities with ICICI Bank.  

In response to queries from the stock exchanges on the subject, ICICI Securities said the outreach was meant to maximise shareholder participation in the voting process.  

Quantum also alleged conflict of interest on the part of two directors of ICICI Securities who voted in favour of the delisting despite holding a significant number of ICICI Bank shares.  

“These interested Directors who each have a substantial shareholding in ICICI Bank clearly amounts to a conflict of interest, as the said directors directly stand to gain out of the delisting of ISEC,” Quantum said in its complaint to Sebi.

Founded in 1995, ICICI Securities provides institutional and retail broking services, including extending margin trade finance and ESOP finance, distribution of financial products, merchant banking and advisory services. The company got listed in 2018.