The Hindu Business Line : Geojit to exit commodity business to clear hurdles for BNP takeover

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Geojit to exit commodity business to clear hurdles for BNP takeover

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Mumbai, May 5 BNP Paribas and Geojit Financial Services have worked out a plan to overcome the regulatory hurdle that has come in the way of the French banking group picking up the majority stake in the Kerala-based broking firm.

According to sources familiar with the development, the management of Geogit has agreed to exit the commodity business, which posed the regulatory problem, and in return, BNP has agreed compensate Geojit and its shareholders.

BNP, which had bought 27 per cent equity shares in Geojit at a price of Rs 26 a share, aggregating Rs 207 crore, in March 2007, could not go ahead with the mandatory open offer pending clearance from the Reserve Bank of India. RBI, it is learnt, refused to clear the proposal since Geojit is also engaged in commodity trading. As per the prevailing rules, banks in India are not allowed to enter commodity trading.

The capital market regulator SEBI refused to clear the open offer without the RBI approval as BNP is a bank operating in India.

According to sources, Geojit has agreed to exit the commodity business, which contributed around eight per cent of the company’s revenue. Geojit can sell the commodity business, but a distress sale may not fetch the right price. Therefore, BNP has agreed to pay compensation to the company, sources said. Technically, this could lead to a higher open offer price to Geojit’s shareholders, they said.

As per the original schedule, BNP was to make the open offer at a price of Rs 27.50 per share. Geojit shares closed at Rs 62.35 on BSE on Monday.

Mr Frederic Amoudru, BNP’s Country Manager for India, said that he would not like to comment on the development as it is for the boards of both the companies to decide on the matter.

Mr C.J. George, Managing Director, Geojit, said, “We are weighing various options and hope to find a solution to the issue soon.”

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