Four PE investors eye $150 million deal with Lakshmi Vilas Bank

Industry: Banking, Financial services 2016-09-08

MUMBAI: A hefty raft of bulge bracket private equity investors including TPG Capital Management, General Atlantic, Capital International and India focused fund Chrys Capital are in separate talks with Lakshmi Vilas BankBSE 1.58 % to invest as much as $150 million against up to 20% stake in the private sector lender.

The stake sale is to bankroll the bank’s aggressive expansion and quest to increase its reach and it has recently hired a bunch of senior executives from larger rivals such as HDFC, Axis, and RBS.

The funds have started due diligence on the bank’s books and is expected to conclude the transaction “very soon”, multiple sources with direct knowledge of the transaction told ET. “Yes, the negotiations have progressed quite a lot. We expect to conclude the transaction soon,” one of the sources said. Any single investor can own up to 5% in a bank. Anything above that needs RBI approval.

Domestic investment banking firm Avendus is helping the bank to find a private equity partner, sources said.

“The bank proposes to raise capital. The exact amount that would be raised is not yet certain and neither is the timing and route for such fund raising. The bank has met some prospective investors but it is still too early to discuss specific names,” Parthasarathy Mukherjee, managing director, Lakshmi VilasBSE 1.58 % Bank, told ET in an emailed response.

“TPG follows a strict disclosure policy and hence is unable to confirm or deny these suggestions about our interest in the company,” a TPG spokesperson said in response to an email seeking comments on the story. Chrys Capital declined to comment. GA and Capital International did not return emails seeking comments till the time of going to press.

South IndianBSE 1.85 % lender Lakshmi Vilas is revamping by hiring veterans at key posts and planning to enter into key markets. The bank recently appointed former IDBI CFO NS Venkatesh as executive director, while RVS Sridhar, who was a top official at Axis BankBSE 0.97 %, joined the bank as chief risk officer. The bank’s shares have surged 63.15% in three months, significantly outperforming the Bankex, which was up 14.33% during the same time.

Lakshmi Vilas has got approval to issue up to 4.25 crore equity shares, which is 23.6% of total paid up equity, but sources close to the development said the lender may not fully exercise the limit at a single go. It would rather wait for better market condition and improved valuation for the second phase fundraising towards the end of the financial year or early next year.

Shares in the bank closed at Rs 142.75, nearly 1% up on BSE on Wednesday. Currently, operations are spread over a network of 460 branches across the country but 60% of the branches are in Tamil Nadu. The bank was founded in 1926 by a group of seven businessmen of Karur under the leadership of VSN Ramalinga Chettiar. Their objective was to cater to the financial needs of the people in and around Karur who were occupied in trading businesses, industry and agriculture. From a community bank, Lakshmi Vilas has emerged as a bigger private sector lender. The promoters own only 9.66% of the bank with the rest being widely held by public shareholders.

The bank with Rs 19,819 crore loan assets looks to shore up tier 1 capital which has fallen to 8.68% as on March from 9.33% a year ago. Its capital adequacy ratio, a measure of banks’ financial strength, has fallen to 10.67% from 11.34%.