Financial Merger: Aditya Birla Capital’s Move to Consolidate Business Operations

Aditya Birla Capital, a publicly traded company, has recently announced its decision to merge with its subsidiary, Aditya Birla Finance Ltd. This strategic initiative is aimed at enabling the unlisted subsidiary to bypass the requirement imposed by the Reserve Bank of India (RBI) for non-bank lenders to become publicly traded entities. Aditya Birla Finance is among the 15 upper-layer non-bank lenders mandated by the RBI to go public by September 2025.

The merger is anticipated to simplify the group’s organizational structure, transforming Aditya Birla Capital from a holding company into a formidable operating non-banking finance company (NBFC). This consolidation is also expected to facilitate the company in streamlining business and operational synergies, as well as reducing regulatory complexities.

Kumar Mangalam Birla, chairman of the Aditya Birla Group, has expressed his confidence in the proposed merger, noting that it will establish a robust capital base for Aditya Birla Capital to expand its business and partake in India’s growth narrative.

The amalgamation is subject to regulatory and other approvals, and upon finalization, Aditya Birla Finance will be dissolved without undergoing liquidation.

In October 2021, the RBI issued a circular mandating all upper-layer NBFCs to become publicly listed within three years of classification, in accordance with disclosure standards similar to those of listed companies. Aditya Birla Capital’s decision to merge with its subsidiary is viewed as a tactful maneuver to optimize its corporate structure, rather than an attempt to circumvent the RBI regulations.

As per Asutosh Mishra, head of research, institutional equities, the subsidiary being absorbed was already included in the listed parent’s accounts, and the merger could potentially eliminate the valuation discount associated with a holding company.

The merger is projected to take 9-12 months to materialize, and upon completion, Aditya Birla Capital will convert from a holding company to an operating NBFC with publicly traded equity shares.

Vishakha Mulye, CEO of Aditya Birla Capital, has outlined the implications of the merger, stating that the assets and liabilities of Aditya Birla Finance will be transferred to Aditya Birla Capital without the issuance of new shares, thereby maintaining the existing shareholding structure of Aditya Birla Capital.

Upon becoming an operating NBFC, Aditya Birla Capital’s stake in the life insurance business would exceed the limit imposed by the RBI. The company intends to seek the RBI’s permission and guidance to address this issue.

Overall, the merger is perceived as a strategic measure to streamline operations and optimize the corporate structure of Aditya Birla Capital, positioning the company for sustained growth and competitiveness in the financial services sector.