The Reserve Bank of India has okayed the amalgamation of United Western Bank with IDBI. It has given both the banks two weeks to okay the amalgamation scheme.
Devina Mehra of First Global believes that the value of United Western Bank was the highest for IDBI. Mehra feels that UWB is a good fit for IDBI. According to her, United Western Bank's branch network would be most beneficial for IDBI.
Clearly, Rs 28 is what the shareholders of United Western Bank will get from IDBI. But the big question is, who would be counted as a shareholder of UWB?
If one buys the shares today, would he be counted as a shareholder of UWB or should one have possessed the share yesterday or did one have to be a shareholder when the moratorium was declared on September 2?
Investment advisor S P Tulsian answers these questions. Tulsian believes that every shareholder; even if someone buys the shares today from the market and gets them transferred to their demat account, will be entitled to this offer.
Excerpts of CNBC-TV18's exclusive interview with Devina Mehra and SP Tulsian:
How have you read the move that has come in for UWB shareholders and more importantly for an IDBI shareholder as well?
Devina: Last week, we had done a piece on potential bidders for UWB and our conclusion was that it would and should go to IDBI. The same asset can have different economic values for different bidders and we think that the value of UWB was the highest for IDBI because IDBI is in a slightly peculiar position because of its transformation from DFI (Developmental Financial Institution) into a commercial bank.
It actually has very few branches; it has less than 200 branches for an asset base of Rs 90,000 crore. If one compares it with all the public sector banks, they have thousands of branches, even HDFC has more than 575 branches, ICICI Bank has more than 600. So to that extent, the branches would be the most useful acquisition for IDBI. Because related to that, is the fact that because of its history, its liabilities are still very skewed towards its DFI days.
It does not have enough of low cost liabilities, which are the deposits, specially not in the current and the savings account kind of liabilities. And UWB's branches that way in western India are well situated for deposit gathering. So to that extent, the fit is pretty good for IDBI. The NPA level again while it is high, the absolute number is not that high relative to IDBI's balance sheet size.
In terms of capital adequacy, again IDBI was one of the few banks, which could have taken on UWB; as compared to Canara Bank, which was talked about as one of the potential winners; that is already pretty strained on the CAR (Capital Adequacy Ratio) front. So all in all, the fit is reasonable and specially the news of RBI that does not allow the IPO tainted banks to increase the number of branches, the value will be even more for IDBI.
Do you have any target on IDBI now? Would you buy it for the long-term?
Devina: We actually have to study the UWB balance sheet in a little more detail and then review our rating because we had been very negative on IDBI for a long time. And that was absolutely the worst performing largecap stock. Of late, we had moderated our stand but we still had a negative bias.
One more thing they said, which would weigh on IDBI
Is it also the best way that IDBI could have gone about; paying up this upfront Rs 150-158 crore as opposed to going in for some sort of complicated share swap etc?
Devina: I read something where SICOM was saying that they would actually try for a higher price. So I haven't gone into all the details of the amalgamation scheme right now, I will have to look into it for a little more detail.
Who are the shareholders who will be considered for the Rs 28 offer?
Tulsian: As of today, every shareholder. Even if someone buys the shares today from the market and gets them transferred to their demat account, they will be entitled to this. The central government will notify a prescribed date which will be the effective date for ascertaining the entitlement of the shareholders to whom IDBI will be sending the payment of Rs 28.
But from a broader perspective, in my opinion, a provision of Rs 150.5 crore has been made by IDBI for all the shares, which are at present outstanding, having been issued by United Western Bank.
So on the date to be announced by the central government, that amount will go to shareholders who have their names appearing on that date. They will be entitled to that Rs 28.
It is just like ascertaining the dividend for bonus entitlement in which the company announces a record date. So here also a prescribed date will be announced by the central government.
Will September 2, the day of the moratorium, be the prescribed date by any chance?
Tulsian: No, it will not. On September 2, United Western Bank seized its operations, so that is the date of takeover. The balance sheet of United Western Bank will be prepared from April 1 to September 2.
September 2 will be the effective date of takeover of the bank by IDBI, but it has no relation in respect to ascertaining the entitlement of the shareholders.
Just to reiterate the point, even if I bought a UWB share today, I am entitled to get Rs 28 per share from IDBI?
Tulsian: Yes, 100%.
What is your advice to shareholders who hold the share now? Sell it at this point of time and get your money right now or wait for the prescribed date? What is the procedure after prescribing? How long will it take for the money to come into your account?
Tulsian: This will be a very fast process because they will get the money very fast, maybe in 15-20 days. So if you get a price of maybe closer to Rs 27 or Rs 27.50, then you should tender your shares in the open market.
But here the taxability will come into play. If you tender the shares in the offer made by IDBI, you will not be entitled for the deduction of tax from long term capital gain or short term capital gain, as the case may be. It will be treated as full taxable profit. So if you want to avail of capital gains, it is better to sell in the open market.
What price do you see UWB going up to given the tax implications?
Tulsian: It should settle at around Rs 27 in the secondary market.
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