RBI's directive to Catholic Syrian Bank to settle valuation issues with Fairfax comes amid interest from PE firms Aion and Everstone to pick up stake in the lender
Mumbai: The Reserve Bank of India (RBI) has asked Catholic Syrian Bank 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 who asked not to be identified.
On Tuesday, Bloomberg reported private equity investors Aion Capital Partners and Everstone Capital have expressed interest in picking up a stake in the south India-based private sector lender.
Catholic Syrian Bank and RBI spokespersons did not respond to emails seeking comment. Fairfax didn’t reply to an email seeking comment.
Canada-based Fairfax won the central bank’s approval to buy a 51% stake in Catholic Syrian Bank in December last year, setting the stage for the first such instance of a bank’s takeover by a non-banking financial entity.
Following this, Catholic Syrian Bank appointed an external agency for valuing the stake. According to the Bloomberg report, this agency arrived at a valuation of about Rs165 to Rs200 per share, plus a control premium of at least 15%.
There is a benchmark, too. On 23 May, Vallabh Bhansali, chairman of Enam group, picked up a nearly 4% stake in the bank at a valuation of Rs160 per share, according to one of the two people cited in the first instance. That is a 30% premium to the Rs123.5 per share book value for Catholic Syrian Bank at the end of March. This also values the bank at around Rs1,295 crore.
Bhansali declined to comment.
However, this is far higher than the valuation assigned by Fairfax, which arrived at its estimate after taking into consideration Catholic Syrian Bank’s performance six months ago, said the second person.
For the six months to September, the bank posted a net profit of Rs5.3 crore, as against a loss of Rs40.5 crore a year ago. In fiscal 2016-17, the bank reported a profit of Rs15.5 crore against a loss of Rs150 crore a year ago. However, gross non-performing assets increased to 7.25% of advances at the end of March against 5.62% a year earlier.
The bank planned to raise up to Rs400 crore through an initial public offer in 2015, but didn’t because of volatile market conditions. Subsequently, it raised Rs111 crore through a preferential issue of shares.
The second person cited earlier said that with the revival of markets and the bank’s performance following the appointment of the new managing director C.V.R. Rajendran last year, the lender expects a higher valuation.
Fairfax’s reluctance to pay a premium could also have something to do with the fact that RBI rules cap 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 Catholic Syrian Bank. Bidders would need to get central bank approval for a deal, according to the people. Catholic Syrian Bank may seriously engage with them if it can’t reach an agreement with Fairfax, Blomberg reported citing people it didn’t identify.
Bloomberg contributed to this story.
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