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Abhrajit Gangopadhyay
C. Shivkumar

Bangalore , Aug. 17

AFTER protracted negotiations, Canara Bank has finalised the buy-out of the stakes of both Corporation Bank and Bank of Baroda in the primary dealership, Gilt Securities Trading Corporation Ltd, at book value.

GSTCL is a three-way joint venture between these banks and has a paid up equity of Rs 100 crore.

Canara Bank is the majority equity holder with 51 per cent while BoB and Corporation Bank have a stake of 29 per cent and 20 per cent each respectively.

Both Corporation Bank and BoB had expressed their desire to exit from the venture since both the banks floated their own primary dealership subsidiaries in 2000.

However, this exit was stuck tracking pricing issue. Both Corporation Bank and BoB had sought a valuation on the basis of market value although Canara Bank was prepared to concede only on the basis of the book value.

The market value was sought initially in view of the bull run in the bond markets since the 2000, when the 10-year yields dropped from 11 per cent in 2000 end to a low of 5.2 per cent early this year.

But since May this year, 10-year yields have been on the ascent and have topped 6.7 per cent. Primary dealers have been badly knocked in the process, leading to losses for some of them.

As a result, both the banks have opted for book value to exit. The book value of GSTCL as per the last finalised balance sheet was Rs 33.45 per share. This would be the exit price, Canara Bank sources said.

Mr Cherian Varghese, Chairman and Managing Director of Corporation Bank, however, said, " We are still discussing the issue."

But the Canara Bank sources said that the payments to both BoB and Corporation Bank would be made shortly on the basis of the agreed price. Based on this pricing, BoB stake was valued at close to Rs 98 crore and Corporation Bank's at nearly Rs 67 crore.

This price is almost in line with the current estimated market price. Based on earnings discounting of six times, the market price works to about Rs 35 per share.

This was considerably higher than the market price of the only listed primary dealer, PNB Gilts Ltd, at Rs 20 as on August 17.

The sources said that the exit was contemplated since both the JV partners had pulled out their members from the board of GSTCL about 2 years ago. Besides, the setting of a parallel primary dealership by both these banks led to a conflict of interests among them.

But GSTCL has remained a highly profitable venture since inception, since there has been very little devolvement of either treasury bills or dated securities. As a result, the primary dealer has paid out dividends since the beginning of operations. For the last financial year, GSTCL paid out a dividend of 12 per cent.

More Stories on : Mergers & Acquisitions | Financial Services | Public Sector Banks

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