The board of directors of both the companies have approved the merger and the proposal (to come into effect from April 1, 1999) currently awaits the nod of high courts of Chennai and Calcutta apart from the clearance of the shareholders of respective companies.

``Size matters a lot in the financial services sector and that is the reason we decided to merge OSFL with Nicco, said N Sankar, chairman of Sanmar group at a press conference in Chennai on Thursday. Sanmar group has identified PVC, Speciality Chemicals, Shipping as its core area and by this arrangement the group will only be an investor in the merged entity and the day to day operations would be handled by NUACL. Former CII chairman and managing director of Chemplast Sanmar, N Kumar will represent thegroup on the board.

The chairman of Nicco group Rajive Kaul said that his group has identified finance business as a thrust area and has been growing both organically and through mergers. He further said that this merger would enable NUACL to foray into South especially into truck financing in a big way. Presently, only Rs 10 crore of NUACL's 200 crore assets is in truck financing business.

Moreover, he said that the merged entity will benefit from synergistic, geographic and financial benefits. About Rs 25 crore is being infused by NUACL and Sanmar group to improve the liquidity position of OSFL pending merger.

NUACL has eight branches in West Bengal, Delhi, Bihar and Orissa while OSFL has 15 branches in Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and Maharashtra. The merged entity will have an asset base of Rs 350 crore, net-owned funds of Rs 51 crore, public deposit of around Rs 156 crore, capital adequacy ratio of 16 per cent and an NPA level of less than three per cent.

NUACL gets 75 per centof its revenues from hire-purchase and leasing while the balance comes from corporate funding and fee-based activities such as trade financing, loan syndication etc. In probably first of its kind in the NBFC industry, Sanmar group has bought NPAs to the tune of Rs 37 crore for Rs 17 crore and proposes to set up an asset reconstruction company (ARC) to recover the debts.

``We wanted to ensure that every constituent of OSFL get a fair deal hence Sanmar group decided to pick-up the NPAs so that it will become a merger of the equals and a 1:1 ratio can be brought about'', Sankar said.

Post-merger, Nicco group will have 27 per cent stake, Sanmar 16 per cent, Uco Bank 6 per cent, International Finance Corporation and Indian Overseas Bank 4 per cent, while the public will have the rest 36 per cent. The name of the merged entity will not be changed to reflect the entry of Sanmar group.