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Hit by bailout blueprint, LVB investors cry unfair treatment

Shares of the bank, which had soared to a 52-week high of  ₹25.18 in June on hopes of a turnaround, crashed on Wednesday, and were locked at the 20% lower circuit at  ₹12.40.Premium
Shares of the bank, which had soared to a 52-week high of 25.18 in June on hopes of a turnaround, crashed on Wednesday, and were locked at the 20% lower circuit at 12.40.

  • LVB’s retail shareholders, holding 23.98% of its shares as on 30 September, will be left with absolutely nothing, with RBI proposing to delist any listed shares or debentures of the bank after the merger

Investors who scooped up shares of Lakshmi Vilas Bank (LVB) betting on a potential turnaround are watching their money vanish, with the central bank proposing to slash the bank’s equity value to zero as part of a rescue plan.

The Reserve Bank of India (RBI) has sought suggestions and objections to its draft scheme of amalgamation with DBS Bank India Ltd till 20 November, following which a final decision will be taken.

LVB’s retail shareholders, holding 23.98% of its shares as on 30 September, will be left with absolutely nothing, with RBI proposing to delist any listed shares or debentures of the bank after the merger.

Graphic: Mint
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Graphic: Mint


Shares of the bank, which had soared to a 52-week high of 25.18 in June on hopes of a turnaround, crashed on Wednesday, and were locked at the 20% lower circuit at 12.40. The shares are now 93.63% below their record 194.70 touched in July 2017, losing 3,509.88 crore in market value. The stock has plunged 36.13% in the past year.

“Although the extinguishment of capital/reserves and merger with an unlisted bank will be negative for minority investors, the larger interest of depositors has been protected," Emkay Global Financial Services Ltd said in a report.

Upset shareholders said RBI’s action is in the right direction, but investors should not be completely ignored either.

An executive at one of LVB’s institutional shareholders said, “It should not be done at the cost of domestic investors; otherwise, it would set a precedent that would discourage investors from investing their hard-earned money in Indian financial services firms. The shareholders and investors have stood by the bank during its crisis period, and their interest should also be protected. Hence, we would urge RBI to reconsider the proposal of writing off the paid-up share capital and reserves."

“We hope the regulator will opt for a solution that is fair and protects the interest of all stakeholders and does not discriminate," the executive added on condition of anonymity.

As on 30 September, foreign portfolio investors (FPI) had 8.65%, and insurance firms, including Life Insurance Corp. of India, held 6.40% in LVB. FPIs include India Opportunities Growth Fund Ltd-Pinewood Strategy, EQ Assets and Aviator Emerging Market Fund. Aditya Birla Sun Life Insurance and Pramerica Life Insurance held 1.83% and 2.73%, respectively.

Gagan Banga, vice chairman and managing director of Indiabulls Housing Finance, which holds 4.99% in LVB, on Wednesday said his company’s board is preparing to submit its response to RBI.

“Drawing a parallel with the Insolvency and Bankruptcy Code, the interest of depositors is first in the waterfall mechanism, and equity is always the last," said Ajay Shaw, partner, DSK Legal, a law firm.

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