RBI asks CSB to sort out valuation issue with Fairfax
The Reserve Bank of India has asked Catholic Syrian Bank (CSB) to iron out differences over valuation with Prem Watsa’s Fairfax Financial Holdings before looking at other investors, according to two people aware of the matter.
Earlier on Tuesday, Bloomberg had reported that private equity investors such as Aion Capital Partners and Everstone Capital have expressed interest to pick up stake in the south-India based private sector lender.
CSB and RBI spokespeople did not respond to emails seeking comment.
Canada-based Fairfax had won the central bank’s approval to buy 51% stake in CSB in December last year, setting the stage for the first such instance of a bank’s takeover by a nonbanking financial entity.
Following this, CSB appointed an external agency for valuing itself. According to the Bloomberg report, this agency valued the bank at about ₹165 to ₹200 per share, plus a control premium of at least 15%.
There is a benchmark too. On May 23, Vallabh Bhansali, chairman of Enam group, had picked up a nearly 4% stake in the bank at a valuation of ₹160 per share, the first person said. That is a 30% premium to the ₹123.5 per share book value for CSB at the end of March. This also values the bank at around ₹1,295 crore.
However, this is far higher than the valuation assigned by Fairfax, which had arrived at its estimate after taking into consideration CSB’s performance six months ago, said the second person cited earlier.
For the six months ended September, the bank had reported a net profit of ₹5.3 crore compared a loss of ₹40.5 crore a year ago. For fiscal 2016-17, the bank has reported a profit of ₹15.5 crore compared to a loss of ₹150 crore a year ago. However, gross nonperforming asset increased to 7.25% of advances at the end of March compared to 5,62% a year earlier.
The bank had plans to raise up to ₹400 crore through an initial public offer in 2015, but it had to drop the plan because of volatile market conditions. Subsequently, it raised ₹111 crore through a preferential issue of shares.
The second person cited earlier pointed out that with the revival of markets and the bank’s performance following the appointment of the new managing director CV Rajendran last year, the lender expects a higher valuation.
Fairfax’s reluctance to pay a premium could also do with the fact that the RBI rules caps voting rights in a private sector bank at 15%, irrespective of the shareholding.
The regulator has called for a meeting with the Catholic Syrian Bank this week to discuss these issues.
Aion and Everstone haven’t started formal negotiations with CSB. Bidders would need to get central bank approval for a deal, according to the people.
CSB may seriously engage with them if it can’t reach an agreement with Fairfax, Blomberg reported citing people it didn’t identify.
CANADABASED
FAIRFAX HAD WON
RBI’S APPROVAL TO BUY A 51% STAKE IN CSB IN DECEMBER LAST YEAR