The Hindu Business Line : HSBC in a quandary over UTI Bank deal?

WHEN the UK-based HSBC Ltd struck a deal with compatriot CDC Capital to buy its 20 per cent ownership of UTI Bank for a little over Rs 410 crore, it was touted as a winning manoeuvre in a gradually opening Indian banking industry. Three months later it appears that the move has only landed the British bank in a quandary.

As per CDC's share purchase agreement with UTI Bank, the private equity firm was a strategic investor with a right to appoint representatives to the board, a place on key panels such as the bank's investment committee and an important "tag-along" clause.

According to the clause, if UTI, the original promoter of the bank, were to sell its stake to a third party, it would also have had to dispose of CDC's holding. These special privileges - non-transferable with shares - have to be approved by the board of UTI Bank as well as the Specified Undertaking of UTI (UTI-I). The tag-along clause can be permitted by only the Specified Undertaking, which owns a little over 33 per cent of the bank's equity.

Even other major shareholders such as Life Insurance Corporation and General Insurance Corporation, which hold 20 per cent equity in the bank, do not have any say over that right.

An HSBC spokesperson said that the bank had no comments to offer on the issue.

A top official at UTI-I told Business Line that even though HSBC had offered to buy out the 33 per cent, it was in no hurry to sell. "We have enough money now and do not need to sell the stake for cash. We are also not averse to selling it provided we get the price we want to anyone who is willing to pay, not necessarily HSBC. Giving them special rights is out of question. A board seat, may be, but nothing else," the official said.

Also, the transaction has not yet been cleared by the Reserve Bank of India (RBI), but officials at HSBC and CDC insist that it is only a matter of time and the regulator is merely making sure everything is alright as it would be setting a precedent.

However, more than the regulatory nod, it is the rights attached or rather, not attached, to the shares that could render the purchase a mere financial investment but little else for HSBC.

The foreign bank has said in the past that it did not want anything more.

"We don't expect to be treated in any significant way different from other shareholders," Mr Niall Booker, CEO of HSBC, had said after signing the agreement with CDC on December 2.

HSBC's buying an ownership had done wonders to UTI Bank on the bourses too. The bank's stock had shot up to its all-time high of Rs 180 in less than a month of announcing the deal.

On the day the two parties signed a share purchase agreement at a price of Rs 90 per share, the stock had closed at Rs 115. It has since been falling steadily and was quoting at Rs 137 per share at close on Friday.

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