Reverse merger & exceptional case of 0% Promoter holding.

The baics of stock investment is to look out for companies which are fundamentally strong. It happens that people looks out for promoter as well as owner holding in the organisation. Checking a company's promoter holding before buying a stock is important because it indicates the level of confidence the company's founders have in their own business, which can be a strong signal about the company's future prospects and stability. A high promoter holding is generally considered a positive sign, as it suggests that the promoters believe in the company's success and are invested in its long-term growth. Promoter shareholding is important because it can indicate a company's stability, growth potential, and the alignment of interests between promoters and shareholders.

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While analyzing few of the stocks, I was surprised to.find a banking institute with "0" promoters holding. It is quite unusual to find a reputed public Bank named Ujjivan Small Finance Bank have no promoter to back the banking services. It took me a while to figure out the actual reason. The reason has comes to known as Reverse Merger.

Ujjivan Small Finance Bank (SFB) shows 0% promoter holding because of a reverse merger with its parent company, Ujjivan Financial Services Ltd. Before this, Ujjivan Financial held a large promoter stake. But after the merger, Ujjivan Financial ceased to exist, and its shares were canceled. Shareholders then received shares in Ujjivan SFB through a swap ratio, reclassifying them as public or institutional investors instead of promoters.

In a reverse merger, the private company's stockholders retain a majority of the combined company's stock, and the private company's management and employees become the combined company's management and employees. The combined company's board reflects the ownership split, and the private company's business becomes the combined company's business. The combined company often changes its name to the private company's name.

This process aligns with RBI guidelines, which require Small Finance Banks to reduce promoter holdings over time. It is important to remember that, A company with no promoters isn’t necessarily bad! Always weigh the pros and cons before deciding and investing into a company.

Peace !!

Namaste @steemflow

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