Catholic Syrian Bank-Fairfax deal collapses on valuation

Fairfax arrived at a valuation of Rs60-100 per share for picking up 51% stake in Catholic Syrian Bank as against the bank's own estimate of Rs165-200 a share

Gopika Gopakumar
Updated30 Jun 2017
Fairfax Financial Holdings chairman Prem Watsa. Photo: Reuters
Fairfax Financial Holdings chairman Prem Watsa. Photo: Reuters

Mumbai: Prem Watsa-helmed Fairfax Financial Holdings Ltd’s proposed deal to pick up a 51% stake in Catholic Syrian Bank has fallen through over differences in valuation, according to five people aware of the matter.

The Canadian billionaire arrived at a valuation of Rs60-100 a share after an exercise conducted by global audit firm KPMG, said one of the five. All five spoke on condition of anonymity.

The bank’s own valuation done by an external agency put the number way higher. According to a 30 May Bloomberg report, this agency arrived at a valuation of Rs165-200 a share, plus a control premium of at least 15%.

Spokespersons for Fairfax and Catholic Syrian Bank did not immediately respond to emails seeking comment.

“As a policy we cannot comment on company-specific information,” said a KPMG spokesperson.

Catholic Syrian Bank has informed Reserve Bank of India (RBI) about the latest development and is in the process of appointing a merchant banker to find investors, said two others.

According to the Bloomberg report, private equity investors Aion Capital Partners and Everstone Capital have evinced interest in picking up a stake in the Kerala-based private sector lender.

“The bank is currently in informal discussions with several investors to pick up a stake. However this time, the bank will finalize the valuation before taking the deal to RBI for approval,” the two persons cited above added.

Fairfax obtained RBI’s approval to pick up a 51% stake in Catholic Syrian Bank in December last year, setting the stage for the first takeover of an Indian bank by a foreign non-banking financial entity after the central bank tweaked ownership norms in May 2017.

Fairfax’s reluctance to pay a premium is partly because of the south Indian bank’s poor asset quality.

“A bank of this size has a huge exposure to large stressed accounts which are currently non-performing assets on the books of other banks. The valuation done by Fairfax, therefore, reflected the stress on the bank’s books,” said the first person cited earlier.

Catholic Syrian Bank believes that with the revival of markets and the bank’s performance following the appointment of new managing director C.V.R. Rajendran last year, it will be able to turn around with some external funding, said all three persons cited above.

In 2016-17, the bank reported a profit of Rs1.5 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.

Catholic Syrian Bank planned to raise up to Rs400 crore through an initial public offering in 2015, but didn’t because of volatile market conditions.

Subsequently, it raised Rs111 crore through a preferential issue of shares.

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