Retail shareholders of State Bank of Bikaner & Jaipur numbering 177 have objected to the swap ratio (of 28 SBI shares for every 10 SBBJ shares) offered by SBI for merging SBBJ with itself besides demanding between five times and six-and-a-half times book value of SBI as swap ratio.

In a letter submitted to the chairman of the expert committee on the merger scheme, these shareholders said SBBJ shares had been undervalued by the valuation agency vis-a-vis the share price of SBI by not taking into account the book value per share (BVPS) and the superior operating metrics of SBBJ.

“As you are aware, the merger was announced in the month of May and the cut-off date for valuation according to the management was fixed for May 16, 2016. When we analyse the latest available financials as on that date (FY16), we see that the book value per share (BVPS) of SBBJ is at ₹963 which is much higher than that of SBI which is at ₹176.

“Even if one were to take the same on an adjusted basis (netting off NNPAs), the ratio, in fact, increases to 6.5x due to the superior asset quality of SBBJ. Thus, it is clearly established that the swap ratio on book value basis must be around 5-6.5x against the announced ratio of only 2.8x,” the letter stated.

Operational parameters

The letter observed that SBBJ was a much better bank than SBI even in terms of operational parameters. Further in March 2016, SBI had GNPA of 6.5 per cent and NNPA of 3.8 per cent. At the same time, SBBJ was much better at 4.82 per cent (GNPA) and 2.75 per cent (NNPA). In terms of profitability, it was far superior to SBI and generated a return on equity of 12.6 per cent in FY16 versus 7.74 per cent by SBI.

Hence, the logic that joining SBI will bring in better profitability to the shareholders of SBBJ does not stand and is not supported by data, the letter concluded.

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