IDFC losing investor confidence over delay in value unlocking

Investors’ patience with IDFC’s drawn out restructuring exercise seems to be wearing thin, going by their feedback to its Board and management at a pre-annual general meeting conference call.

While one investor wanted IDFC to immediately divest its stake in its asset management company (AMC), failing which he said he will reach out to other investors’ to seek a change in management, another investor, referring to the performance of the stock, alleged value destruction for shareholders.

Vinod Rai, Non-Executive Chairman, IDFC, explained that it has taken the company the last three-four years to try and simplify the entire corporate structure and it has managed to remove all the other entities, except the Bank, AMC and the Foundation. “Now, what we are grappling with today is the IDFC Foundation. It has two joint ventures under it — one is with the Government of Delhi and another is with the Government of Karnataka.”

Also read: To remain on IDFC board, Vinod Rai gives up independent director’s post

In his statement to the shareholders in the latest annual report, Rai observed that in pursuit of creating maximum value for shareholders, over the last few years the Board has been focused on cleaning up the corporate structure of the IDFC Group while awaiting the expiry of the 5-year lock in period for the Group as promoter of IDFC FIRST Bank.

The Reserve Bank of India vide their letter dated July 20, 2021, has clarified that after expiry of the ‘lock in’ period of 5 years, IDFC can exit as promoter of IDFC FIRST Bank.

Rai, who was the Comptroller and Auditor General of India between 2008 and 2013, emphasised that IDFC has engaged a security advisor in October 2020 for disinvestment of non-core activities and for drawing up a strategy, roadmap ahead, etc. The single term of reference for the advisor was maximisation of shareholder value, he added.

In the report, IDFC Chairman noted that alienation of the investments by IDFC Foundation and detachment of Foundation are a prerequisite for the optimum restructuring of IDFC for creating maximum value for shareholders.

IDFC management has been making full efforts in this direction but progress on this front has been slow in view of challenging nature of specific conditions that exist in the joint venture agreements, he added.