Kerala-based Catholic Syrian Bank (CSB) has decided to increase its equity base by creating 80 million shares to allow Fairfax to invest up to Rs 12 billion in the bank for a 51% stake.
According to experts, the valuation of over Rs 23 billion for the entire 100% stake of CSB is about 10% of its total business size.
The money will be infused by FIH Mauritius Investment, a subsidiary of Fairfax India Holdings.
The deal, if it fructifies, will mark the first takeover of an Indian bank by a foreign non-banking financial entity after the Reserve Bank of India (RBI) tweaked ownership norms in May last year. The existing aggregate holding of non-resident investors in the bank’s equity share capital is around 29.49%.
The bank proposes to offer, issue and allot up to 86,295,459 equity shares and/or warrants (or any combination thereof), on a preferential basis, to FIH Mauritius Investment.
The shares are proposed to be issued at a price of Rs 140 per equity share that is at a premium of Rs 130 per equity share to FIH Mauritius.
In December 2016, the RBI gave its approval to FIH Mauritius’ proposal, but the deal did not go through due to valuation issue. While the bank was in talks with new investors, Fairfax had revised its proposal that was approved by the bank’s board on February 18. The lender has called for an extraordinary general meeting of shareholders next month to get nod for the proposal.
The bank said the move would augment the bank’s tier-I capital base to meet future capital adequacy requirements.
The board believes that the strategic alliance with FIH Mauritius Investment, belonging to Fairfax India and the broader Fairfax Financial group that has a significant expertise in the banking and financial space, can be beneficial for the bank’s strategy and governance. It can also offer opportunities to explore synergies with other institutions in the space.G Chokkalingam, founder and managing director, Equinomics Research & Advisory, said the adjusted book value of CSB stood at Rs 49.38 per share as of September 30, 2017.
Hence, this deal gives a valuation of 2.8 times price-to-adjusted book value (ABV). This is a positive for the bank as some of its listed peers trade at a much lower valuation of 1-1.4 times their respective ABVs.
The present authorised capital of the bank is Rs 1.2 billion. Of this, equity share capital worth Rs 809.6 million has been issued.
After the issue, holding of overseas corporate bodies and foreign portfolio investors will increase to 59.22% from 15.75%, while that of institutional investors is likely to come down to 1.67% from 3.44%.
Private corporate bodies’ shareholding is expected to drop to 14.92% from 30.83%. Public shareholding may come down to 17.22% from 35.57%. Other shareholding, including NRIs, will be lowered to 6.65% from 13.73%.
Source: Business-Standard