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ING offers Rs 341 cr to hike Vysya stake to 44% — Deal with GMR at 98 pc over market price

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THE Dutch financial conglomerate ING group has proposed to buy out 23.99 per cent stake held by the GMR Vasavi group in Vysya Bank Ltd. The acquisition of this stake is expected to vault ING's holding to 43.99 per cent in the bank, the Dutch group said in a statement.

The buyout would involve transfer of 5.4 million shares of the GMR group. As a result, GMR's stake is expected to shrink to just four per cent in the bank.

Vysya Bank informed the Bombay Stock Exchange that the board, at its meeting, expressed support for the transaction as it was in the best interests of the bank and all its stakeholders.

The ING group already holds 19 per cent through its subsidiary, Bank Brussels Lambert. Another 10 per cent continues to be held by the World Bank private sector funding arm, International Finance Corporation.

The buy-out would help the ING group to consolidate management control in Vysya Bank. The pricing of the stake is expected to be about Rs 626.92 per share, which is about 98 per cent above Thursday's closing market price of Rs 315.95. This buyout would mean an inflow of about Rs 340.80 crore to the GMR group. Sources said here that there was already an agreement between the ING group and GMR Vasavi on this pricing.

"This pricing looks pretty aggressive for ING, but it is likely to send some positive signals to the market as appetite for good finance stocks are likely to go up," a banking analyst with a European brokerage said.

The market pricing already implies a price earnings ratio (the number of times market price is above the earnings) of about 10 times. However, the ING group pricing indicates a PE of 20 times, implying a positive outlook for the earnings of the bank.

This optimism, banking sources said, was also due to the positive outlook for the banking sector. The banking sector during the last financial year has improved its overall profitability on the back of treasury sector. Vysya Bank is no exception and has one of the most aggressive treasury operations among the private sector banks.

Vysya's treasury operations during the last financial year accounted for at least 35 per cent of its gross income. The gross income was Rs 1,204 crore. Treasury and trading income together was over Rs 700 crore. In fact, these numbers allowed the bank to declare a net profit of Rs 43 crore during the last financial year.

Moreover, unlike the new private sector banks, Vysya also has a sizeable high-quality credit portfolio both in the urban and rural sectors. Income from this portfolio was Rs 450 crore during the last financial year.

The buyout proposal will not make any change in the capital adequacy ratio of the bank, which is currently in the region of about 12 per cent, since there is no inflow into the bank. But the proposal has made the ING group as the largest stakeholder in the bank.

Such a move has already been expected for quite some time, especially in view of the government permission to allow foreign equity up to 49 per cent in the banking sector, in February this year. What has actually surprised the market is the price of the buyout.

But the new proposal has also opened new inconsistencies in the government's policy guidelines for foreign investment in the banking sector.

This is because the buyout proposal will imply that foreign holding in Vysya Bank is about 53.99 per cent inclusive of the IFC stake. This is well over the threshold limit permitted.

Accordingly, the sources said, the buyout proposal would have to go through the necessary approvals of the Ministry of Finance and the Reserve Bank of India.

Besides, if this proposal goes through, it would imply that more Indian companies in the private sector could become future targets.

The potential candidates include GTB and the Centurion bank and a whole lot of old private sector banks.

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