BIRLA Group Restructuring Deal Updates

On June 1, 2017, The Hon’ble National Company Law Tribunal (“NCLT”) bench at Ahmedabad, have approved the merger of Aditya Birla Nuvo Ltd. (“ABNL”) and Grasim Industries Ltd. (“Grasim”), to be followed by the listing of Aditya Birla Financial Services Ltd (“ABFSL”).

APPOINTED DATE

Since the appointed date was effective date, filing of the certified copy of the order with ROC 1^st July 2017 on which date the company will be deemed to have complied with. Therefore, 1^st July 2017 will be Effective date and appointed date for effectiveness of merger of ABNL with Grasim. So ABNL shall stand transferred to and vested in Grasim with effect from the effective date as a going concern.  And 4^th July 2017 will be Effective date and appointed date for effectiveness of Demerger of financial services from Grasim to ABFSL.

But to note is that the shareholder of ABNL will become shareholders of Grasim and ABFSL, therefore they will be part of AGM of the Grasim and ABFSL respectively. With said the management should also initiate and made available separate financial of ABNL for shareholder’s view or approval.

FIXATION OF RECORD DATE

The merger committee of the board of directors of Grasim Industries Limited has fixed 6^th July 2017 and 20^th July 2017 as the record date for merger and demerger respectively.

SPLIT OF SHARE AND SWAP RATIO

Before the approval of the scheme Grasim has split share from Rs. 10 each to Rs. 2 each which has resulted into in adjustment to Share Exchange Ratio

Earlier	Adjusted Swap ratio
For merger of ABNL with Grasim, each shareholder of ABNL will get 3 equity shares of Grasim for every 10 equity shares held in ABNL.	For merger of ABNL with Grasim, each shareholder of ABNL will get 15 equity shares of Grasim for every 10 equity shares held in ABNL.
For de-merger of Financial Services business into ABFSL, each shareholder of Grasim (Post-merger) will receive 7 equity shares in ABSFL for every 1 equity shares held in Grasim.	For de-merger of Financial Services business into ABFSL, each shareholder of Grasim (Post-merger) will receive 7 equity shares in ABSFL for every 5 equity shares held in Grasim.

Please Note: There will be improvement in Liquidity due to Sub-divided equity shares from one (1) equity share of face value of Rs. 10 each fully paid up to five (5) equity shares of face value of Rs. 2 each fully paid up in Grasim.

PROMOTERS STAKE

The promoters increased stake in Aditya Birla Nuvo Limited by 4.37% from 58.39% to 62.76%, which will lead to simultaneously increase stake in Grasim and ABFSL post-merger.

Grasim earlier stake was  38.82% will increase to 40.10% and allotment of 11,97,000 Equity shares in ABFSL will increase promoters stake by 0.56% i.e. 75% including Grasim.

Particulars	Figure
Amount Invested by Promoters in ABNL post Scheme announcement (Crores)	774.74
Share Purchased pursuant above investment by Promoters in ABNL	57,00,000
Share will be allotted based on Swap ratio in Grasim for this additional investment	85,50,000
Share that could have been acquired based on Grasim share price as on 30.12.2016	89,98,139
Additional Shares would have been acquired in Grasim with direct Investment	4,48,139
Market Price of Grasim as on 23.06.2017	1,155
Lower value for promoters for stake acquired (Crores)	51.76

Please Note: If promoters would have directly acquired shares in Grasim then they would also get additional 6,27,395 Equity shares of AFSPL.  

Table 1: Shareholding of Grasim Post Merger of ABNL and ABFSL

Particulars	Grasim (%)	ABFSL (earlier) (%)	ABFSLPost acquisition by promoters (%)
Grasim	–	57.30%	57.30%
Promoters	40.10%	17.10%	17.70%
Public	59.90%	25.60%	25.00%
Total	100.00%	100.00%	100.00%

MARKET PRICE MOVEMENT

Particulars	Aditya	Grasim	Ratio
Market Price as on 11.08.2016 considering split	1,565	907	17.25: 10
Market Price as on 12.08.2016 considering split	1,300	913	14.24: 10
Market Price as on 23.06.2017 considering split	1,746	1,174	14.87: 10
Change in Price from announcement	11.57%	29.44%

On the date on announcement Aditya Birla was overpriced therefore immediately after the date of announcement, Aditya Birla collapsed to streamline with swap ratio.

All the business (Gulf Fertiliser, Indian Rayon, Insulators, Jayshree, Finance and telecom) of Aditya Birla Nuvo had negative growth & lower margin and as compared to FY 2016, except for Financial Services Business.  Whereas all business (Cement, VSF and Chemical Business) of Grasim has shown growth with improvement in margin as compared to FY 2016.  Therefore, the has been considered in arriving at swap ratio for amalgamation.

ARBITRAGE POSSIBILITY AS ON OF NOW – MARKET PRICE AS ON 23.06.2017

Grasim Price	1,177
ABNL Price	1,738
Ratio	1.48
Swap ratio	15:10

Please Note: The Current market price of the Both the companies has been accordingly adjusted to their swap ratio.

Going forward at what value finance business will be listed

VALUATION

Considering the investment by PI Opportunities fund -1 owned by Azim Premji for 2.2% Stake Rs. 700 crores Aditya Birla Finance has been valued at Rs. 32000 crores.  The price of ABFSL for allotment is Rs. 145.40 per share.

DEMERGER DIVISION

Demerger Division transferred to ABFSL:

Particulars	2017 Rs. in crores	2016 Rs. in crores	%Increase / Decrease (-)
Revenue
NBFC	3,399	2,482	37%
Life Insurance	5,314	4,839	10%
Asset Management	968	765	27%
General Insurance Advisory	121	97	25%
Broking	125	119	5%
Private Equity	17	20	-15%
Others/Elimination	17	2	–
Established Businesses	9,961	8,324	20%
New Operating Businesses	380	96	–
Total	10,341	8,420	23%
EBT
NBFC	834	582	43%
Life Insurance	161	73	121%
Asset Management	384	354	8%
General Insurance Advisory	39	32	22%
Broking	5	0
Private Equity	2	7	-71%
Others/Elimination	-49	-30	–
Established Businesses	1376	1018	35%
New Operating Businesses	-154	-112
Total	1222	906	35%

Please Note:

1. New Operating Business consist of Housing Finance Company, My Universe & Health Insurance which currently has negative return but main business NBFC, life insurance and Asset management has generated positive return.
2. Aditya Birla Finance Services Limited will be renamed to Aditya Birla Capital Limited.
3. Finance Business consist of various business (Insurance, Investment and Financing) and all are under one roof. For Life business and Mutual Funds, they have joint venture with Sun Life and Health Insurance they have joint venture with MMI Holding.
4. Other Business of ABNL which has generated negative growth:
   

   Revenue	FY 2017	FY 2016	Increased/Decreased
   Jaya Shree	1,277	1,486	-14%
   Agri	2,165	2,504	-14%
   Rayon	1,035	1,036	0%
   Insulators	498	634	-21%
   Total	4,975	5,660	-12%
   EBITDA
   Jaya Shree	89	182	-51%
   Agri	191	213	-10%
   Rayon	259	269	-4%
   Insulators	52	116	-55%
   Total	591	780	-24%

   Please Note: This negative growth business pursuant to merger will remain with Grasim

Going forward

Grasim is already being traded at discount as its 60% Stake in Ultratech value being approx. Rs. 66,000 crores but current market cap is of Rs. 59000 crores in addition to this it also has VSF and Chemical Business. Post amalgamation of ABNL with Grasim, Grasim will be conglomerate company with having stake in various business including three major investment i.e. Ultratech, Telecom and Finance business to be listed. As post de-merger of financial business, ABFSL will continue to remain a subsidiary of Grasim with stake of 57%. So it should capture valuation of all the businesses mentioned above and after considering holding company discount of atleast 15-20%, it matches with the present valuation.