Kotak Mahindra Announces Amalgamation of Sonata Finance and BSS Microfinance

On August 12, 2024, Kotak Mahindra Bank Limited (the Bank) informed the stock exchanges about a significant development involving its wholly-owned subsidiaries, Sonata Finance Private Limited (Sonata) and BSS Microfinance Limited (BSS).

The Board of Directors of both companies has approved a Scheme of Amalgamation under Sections 230 to 232 of the Companies Act, 2013. This Scheme outlines the merger of Sonata into BSS, which aims to streamline operations and enhance efficiency.

The Scheme is subject to approval from the shareholders and creditors of both Sonata and BSS, as well as the National Company Law Tribunal (NCLT) and other regulatory authorities if required. As of March 31, 2024, the combined net worth of Sonata and BSS constitutes less than 2% of the Bank’s total net worth. Sonata’s net worth was ₹389 crore, with a revenue of ₹596 crore, while BSS’s net worth stood at ₹1,010 crore, with a revenue of ₹931 crore.

The amalgamation is expected to leverage the complementary business operations of Sonata and BSS, which are both engaged in providing microfinance, unsecured small-ticket loans and small-value secured loans primarily to women borrowers and individuals on behalf of the Bank.

The merger is anticipated to lead to increased operational efficiency, administrative and operational rationalisation, and reduction in overheads and expenses. By combining resources, the amalgamation aims to achieve optimal utilisation of assets and improve overall organisational performance.

The transaction, being between two wholly-owned subsidiaries, adheres to arm’s length pricing based on a valuation report from an independent registered valuer. It is exempt from the provisions of Regulations 23(2), (3), and (4) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as it does not involve related-party transactions. Additionally, it is clarified by the Ministry of Corporate Affairs Circular No. 30/2014 that such transactions under the Companies Act, 2013, are not subject to the requirements of Section 188 of the Companies Act, 2013.

In accordance with the Scheme, BSS will issue and allot 1,931 equity shares of face value ₹10 each in BSS for every 10,000 equity shares of face value ₹10 each held by shareholders of Sonata. This share exchange ratio reflects the consolidation strategy aimed at maximising shareholder value and enhancing the operational synergy between the two entities.

The merger represents a strategic move by Kotak Mahindra Bank to optimise its subsidiary operations and strengthen its position in the microfinance sector, thereby driving growth and efficiency.

On August 13, 2024, the share price of Kotak Mahindra Bank opened at ₹1,763.00, touching the day’s high at ₹1,791.50, as of 10:49 AM on the NSE.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.