can you elaborate as what is swap?
USFB is a subsidiary of UFS. However UFS is getting merged with USFB. This is called reverse merger. After the merger is complete, the shares of UFS with be dissolved. To compensates the shareholders of UFS will receive shares of USFB. The ratio will be 116 shares of USFB for every ten shares held in UFS. This ratio is called swap ratio.
This swap will be tax neutral. This means that the holding period of the new USFB shares will be calculated from the date of purchase of UFS shares and the cost of buying new USFB shares will be also be calculated according to the purchase price of original shares.
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| Max | 23.19% |
|---|---|
| Min | 3.53% |
| Average | 15.46% |
Above I have shared the max, min and average arbitrage in the past year for the Ujjivan twins. Just 1 or 2 weeks back it was down to low single digits, now it is back to 15%.
If the merger materializes in the next 2-3 months it is a quick 15% return you can make theoretically. I say theoretically because everyone in the market knows this, during the merger process there will be a month where there won’t be USFB shares in your DEMAT to exit. When the USFB shares get credited there “might” be a fall for a day or so as every arbitrageur who are not in Ujjivan for the long term will try to exit.
This was witnessed in Equitas as well, IIRC it fell 10% on that day but recovered later. So to get the benefit for the entire 15% or more, you may need to either be very quick to exit, or wait for some more time for the price to normalize.
Good thing is the fundamentals should keep supporting the prices.
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What next ? Appreciate your expert advise on this. I have entered USMFB at around INR 25 level in Jan '23- Now, weighing option -whether to exit or hold for the time being.
There is good news for the shareholders of UFS and USFB. Merger has been approved by NCLT.
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At last. Ujjivan Financial Services arbitrage should get covered up as well. Hopefully upward path can continue in this highly undervalued script.
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Yes, arbitragers covered some path today. I think NCLT decision is on the horizon
In terms of USFB price, the price of UFS is equivalent to 615 today. While actual price is @ 550.
It went up 5 per cent today, the gap is closing down.
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Market knew it before it was published on NCLT website or on BSE/NSE.
By seeing 5% move I went to NCLT site, I did not find any update there in the first half of the Friday.
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It was listed for disposal that day, so people took their position in anticipation of approval.
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The shareholders of the holding co will not be able to sell the shares till the newly allotted shares of the SFB are credited. This takes 1-2 months. To discount this, the gap between the holding co and the SFB shares will not go down to zero.
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May 3, 2024 is the record date, so the shares of UFS will get extinguished before the record date. In my view one will not be able to sell or buy UFS shares, after May 1, Wednesday. So there will be increased volumes on UFS counters. Please correct me if I am wrong. … After the merger the equity of the merged entity will be about 3370 crores.
I think the allotment will not take more than 7-10 days, as the company is moving very swiftly, and the record date is already fixed for ensuring the eligibility of UFS shareholders to get USFB shares.
The allotment for Equitas SFB shares took 35-40 days (record date was 03 Feb 2023 and shares got credited on 10 March 2023). On 10th and 13th March (11th and 12th being weekends) the stock fell by appx 6% each day.
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My view is that Ujjivan Bank share price is at attractive valuations and can offer significant upside in coming quarters considering Govt focus on Micro finance as stated in BJP manifesto. So there should not be any panic selling of UFS shares due to conversion .
I do agree with the attraction that MFI space holds at current valuation however, there will always be market participants who had bought the shares for playing this special situation.
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Agree . My point was that any such situation based correction will only make Bank’s valuations more attractive . It has one of the best numbers in peers . One overhang of merger gone now . Another one of new CEO should happen soon . Can have a long flight subsequently with Govt Push .
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The current gap is around ten percent cent. If it falls another ten percent cent when the arbitrage hunters decide to sell, it will be a good opportunity to buy since valuations will become even more attractive.
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