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Suresh Krishnamurthy

HSBC has placed itself in a position to wrap up 20 per cent stake in UTI Bank at a price of Rs 90 per share involving a total outlay of about Rs 415 crore. However, the progress from owning a minority stake of 20 per cent to a controlling stake of close to 50 per cent is likely to involve a substantially higher outlay.

This is because none of the other stakeholders in the bank is likely to accept an offer price of Rs 90 per share. The price is quite low and does not include any premium for acquisition of management control.

For instance, in the deal for acquisition of majority stake in ING Vysya Bank, the price paid was about Rs 627 per share. At that price, the bank's share was valued at more than 20 times the per share earnings then. However, at Rs 90 per share, the price to earnings multiple of UTI Bank works out to only about 10 times. Importantly, UTI Bank is a much bigger bank compared to ING Vysya Bank. The quality of its assets is relatively superior and it has been growing faster than ING Vysya in recent years.

These factors suggest that other shareholders of UTI Bank will extract a much stiffer price from HSBC. With the stock price of the bank now rising sharply, even the public shareholders would avoid any tender offer made at the price of Rs 90 per share. Unit Trust of India, which holds a 33 per cent stake in UTI Bank, will also be averse to offloading its stake at this price. This, however, does not automatically mean that HSBC will raise its offer price. If the recent statements of its top management is any indication, they may not be averse to holding a minority stake in the bank for some time to come. The action now clearly shifts to Unit Trust of India and its plan of action to offload its stake of 33 per cent, which has been hanging fire for a while now.

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