Quantum Mutual Fund has objected to the scheme of merger of ICICI Securities with parent firm ICICI Bank, saying it is "flawed and bridled with irregularities" and will adversely affect minority shareholders of the broking firm.

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Last month, ICICI Securities announced that about 72 per cent of its shareholders voted in favour of delisting and subsequent merger with ICICI Bank, even as the majority of retail investors opposed the scheme.

"The scheme of merger is flawed and bridled with irregularities," Quantum Mutual Fund MD and CEO Jimmy Patel said in his letter written last week to ICICI Bank and forwarded it to market regulator Sebi and the stock exchanges.

In the eight-page letter, Patel said that the scheme will substantially and adversely affect the interest of unitholders of the scheme of Quantum Mutual Fund and as well as minority shareholders of ICICI Securities.

Highlighting irregularities, Quantum Mutual Fund has listed out four major grounds for objecting the scheme such concerns over valuation, alleged fraudulent means used by ICICI Bank to gather votes, conflict of interest of independent directors and violation of delisting norms.

"The valuation reports procured on June 29, 2023 could not have been used to determine the swap ratio or made the basis of voting by the ISec shareholders in March 27, 2024, as the valuation reports fail to account for the various dynamic market changes that took place for the nine month period of June 2023 to March 2024.

"This resulted in providing inaccurate and unreliable valuation reports… there has been no independent application of mind by the merchant bankers and the fairness reports did not deep dive into the valuation exercise," the letter noted.

On March 28, shareholders of the broking firm voted on the proposal to delist the company and make it a wholly-owned subsidiary of parent entity ICICI Bank. Moreover, 83.8 per cent of institutional investors voted in favour of the scheme, while 67.8 per cent of non-institutional investors voted against it.

Overall, 72 per cent of public shareholders voted in favour of the delisting scheme.

As per the scheme, shareholders of ICICI Securities would receive 67 shares of ICICI Bank for every 100 equity shares held in ICICI Securities.

Last year, the boards of both entities approved the delisting and merger scheme. There were reports that some investors in ICICI Securities were against the scheme over valuation concerns.
In the letter, Quantum Mutual Fund alleged that the scheme was non-compliant with delisting rules as ICICI Bank and ICICI Securities are not in the same line of business.

Also, the fund house objected that the management of ICICI Bank was contacting retail shareholders of ICICI Securities and asking them to vote in favour of the scheme.

Quantum MF had voted against the delisting resolution saying that swap ratio is at a lower valuation and is detrimental and prejudicial to the minority shareholders, including the fund house unitolders.

"The swap ratio will result in a net loss of at least approx Rs 17,767 million to ISec minority shareholders, including at least approx Rs 61 million (Rs 6.1 crore) to the unitholders of the schemes of Quantum Mutual Fund.

Also, the fund house has asked ICICI Bank to refrain from taking any further steps or do any act towards implementation of the scheme of merge, failing which adopt appropriate legal proceedings, including filing applications before the NCLT and other regulatory bodies.