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IDBI-IDBI Bank swap ratio likely to be 1:1
BS Banking Bureau in Mumbai |
July 31, 2004 12:25 IST
The swap ratio for the IDBI-IDBI Bank merger is likely to be 1:1 because of the financial institution's majority stake in the banking subsidiary.
If the swap ratio is thus derived, IDBI Bank shareholders stand to benefit more from the merger. This follows the 27 per cent price differential between IDBI and IDBI Bank stock on the Bombay Stock Exchange on Friday.
Currently IDBI directly holds 57 per cent in the banking arm, with another 17 per cent held by SIDBI and five per cent by the employees of the bank. This takes the combined shareholding of IDBI at 79 per cent, leaving just 21 per cent floating stock with the general public.
The stock price of the two scrips has been inching closer to each other. On announcement of the merger of the two entities on Thursday, the market reacted positively to the news with IDBI Bank scrip price touching the upper 20 per cent circuit breaker on the bourses.
On Friday the gap in the price differential of the respective scrips closed further as IDBI Bank stock rose by four per cent to Rs 52.65, while IDBI shares moved up marginally to close at Rs 66.95 against Rs 66.75 a day before.
Said senior analysts, if the stock market is the best valuer of stocks, the swap ratio ought to be around 4:5. That is to say an investor holding five shares of IDBI Bank will get four shares of IDBI. This is based on the current share price of the two scrips, wherein IDBI Bank is ruling at nearly 80 per cent of the current IDBI stock price.
However, looking at the performance of the two institutions there is a stark contrast brought out in their June quarter results. Against IDBI Bank making a profit of Rs 36 crore (Rs 360 million) on a total income of Rs 260 crore (Rs 2.6 billion), its parent posted a net profit of Rs 23 crore (Rs 230 million) on a total income of Rs 1,379 crore (Rs 13.79 billion).
Operating margins of the institution stood at 7.9 per cent and 49 per cent in the case of IDBI Bank. On the non-performing assets, against the bank's 0.2 per cent figure, IDBI's net NPAs crossed 14 per cent as on March 2004.
Others feel that the swap ratio could be decided on the book value, which in the case of IDBI stands at Rs 110 and that of IDBI Bank at Rs 35.
However, as IDBI's NPAs will be transferred to a special purpose vehicle, IDBI's adjusted book value per share is likely to exceed Rs 100 by September this year when it finalises its accounts. As such, there is a possibility that IDBI shareholders will stand to gain more from the merger than the bank's shareholders.