LVB shareholders to ask RBI to reconsider stand on merger with DBS

For large investors, the investment in LVB is already a sunk-cost and has been written off, though these shares have a lock-in.
Shareholders of Lakshmi Vilas Bank (LVB) are to make a representation to the Reserve Bank on Thursday, seeking that their interests be looked at sympathetically. 

A legal battle, sources said, cannot be ruled out though a bad precedent was set when shareholders of Global Trust Bank (GTB) got nothing after it was merged with the Oriental Bank of Commerce (OCB) in 2004.

The draft scheme of merger of LVB with DBS Bank India states that the paid-up share capital, reserves and surplus of the private bank is to be written off. LVB will cease to exist after the merger and its shares and debentures on bourses are to be delisted.

Shareholders are peeved with what they perceive is unfair treatment when compared to YES Bank whose anchor-investors were roped in though quasi-equity investors in AT-1 bonds saw their investments vapourise.

K R Pradeep, the bank’s largest promoter shareholder at 5 per cent, said: “We’ll make a representation to RBI to reconsider its stand. In the case of CSB Bank, which is a smaller bank compared to LVB, Fairfax infused Rs 1,500 crore for a 51 per cent stake. Comparatively, DBS Bank’s offer doesn't seem fair.”

Another source said: “You are handing over a 94-year-old bank to a foreign player almost free of cost. It can’t be that the LVB franchise is worth nothing.” 

The window to make representations to RBI from all manner of stakeholders ends on November 20.

For large investors, the investment in LVB is already a sunk-cost and has been written off, though these shares have a lock-in. 

Also, investors won’t be able to sell LVB shares on bourses given the stock will continue to test the lower-circuit filter till delisting. On Wednesday, LVB shares were down 20 per cent to Rs 12.40 with no buyers in the counter.

“It will be impossible to dump the stock in the market. If RBI doesn't give us a favourable solution, we will leave it at that. We would not want to fight it in the courts like in the case YES Bank,” another large investor said.

That’s because shareholders really don’t have a case, as by definition, investments in shares are unsecured and they cannot expect to be treated like bondholders. It is also not clear if DBS Bank would opt for a local listing.

This is not the first instance of a foreign bank taking over a listed bank in the country. In 2002, ING Bank acquired Vysya Bank, which now resides within Kotak Mahindra Bank.

The difference is that DBS Bank is locally incorporated. The bank also opted for the RBI’s subsidiarisation route in 2017 along with the State Bank of Mauritius – the only two banks to have gone down this road. Local incorporation promises “near-national treatment” from the RBI, and local listing is an option that is available, though not mandatory.  

“Ideally, DBS Bank India should opt for listing and, hence, keep the listed window of LVB open. Being a listed entity will give the bank better access to capital,” a senior banker said.

Retail shareholders own 23.98 per cent in LVB followed by high-net worth individuals at 22.75 per cent, foreign portfolio investors at 8.65 per cent, and insurance companies at 6.40 per cent (of which the largest stake is held by the Life Insurance Corporation at 1.62 per cent).

Some of the bigger shareholders are Indiabulls Housing Finance with 4.99 per cent stake, Srei Infrastructure Finance at 3.34 per cent stake, and Prolific Finvest Private with 3.36 per cent stake.

Mona Bhide, managing partner at Dave & Girish & Co, said: “Usually, a three-forth majority of shareholders is required for delisting or merger. While RBI has invoked Section 45 of the Banking Regulation Act, it still cannot afford to step aside the interest of shareholders.”

Sources also said LVB and GTB are two different cases. GTB had existential issues, which isn't the case with LVB.

Another layer of complexity in the LVB case is that in several old-generation private banks, many depositors are also shareholders. So, it is hoped that the RBI “would opt for a solution that is fair and protects the interest of all stakeholders and does not discriminate one from another”. Sources said a transparent bidding process like the one in Dewan Housing Finance Corporation, or appointment of an independent valuer to arrive at a fair valuation and prevent wealth erosion of shareholders, would be preferred.

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