Saturday, November 22, 2014


It’s no secret that Kotak Mahindra Bank has walked away with a steal with ING Vysya Bank. The stock behaviour on Thursday and Friday was clearly telling us that the market liked the price at which it managed to get this really great asset. But the deal has left some unanswered questions and I dare say if I am an ING Vysya shareholder, I won’t hesitate to say, this even leaves some stench of not following best corporate governance standards either. I will explain why

First and foremost, it’s well known that ING desperately wanted to cash out of ING Vysya Bank – the parent company’s troubles are well known. So obviously, there is a hint of duress in this sale. But should that matter if the owner wants to sell it? – yes it does and here is the primary reason.

Take a look at the shareholding pattern of ING Vysya Bank: First of all, the promoters hold only 42.73% stake, not even 50%. Secondly, the total promoter shareholding of 42.73% is further subdivided into two entities: ING Mauritius Holdings which holds 33.22% and ING Mauritius Investments which holds 9.51%. Now take a look at what the regulations say regarding the shareholding and voting cap for private banks.

“Bodies Corporate under Category A (2) Foreign consists of two wholly owned subsidiaries of ING Bank N V namely (i) ING Mauritius Investments I (9.51%) and ING Mauritius Holdings (33.22%). The First body Corporate enjoys full voting rights of 9.51% . The voting of second body corporate is governed by section 12(2) of the Banking Regulation Act, 1949 which says that no shareholder holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights (on poll) in excess of ten per cent or such percentage as my be permitted under the prevailing laws as may be amended from time to time of the total voting rights of all the shareholders of the banking company. At present the voting rights of any shareholder of the Bank, irrespective of the number of shares held by him is restricted to 10% . As such voting rights of the second body corporate is restricted to 10% and thus the aggregate voting rights of Foreign bodies corporate stand at 19.51%”

So, there you go - ING may have 42%stake but it has less than 20% voting right. How can it make a decision on it's own?

The second reason is up for debate – normally in bank acquisitions, for a healthy bank – the acquirer values the target at same valuations as itself – case in point being HDFC Bank’s acquisition of Centurion Bank of Punjab at almost 5 times Book Value whereas Kotak is paying only 2 times the trailing book value. In this case, there is a big discount of nearly 30-40% for an asset which is far more complimentary that Centurion was for HDFC Bank. ING Vysya has 553 branches to Kotak’s 661 and has 638 ATMs vs 1156 for Kotak. Even in terms of income and profit parameters, Kotak is no more than 3x ING Vysya Bank.  But the deal has valued Kotak almost 6 times of ING Vysya Bank. But as I said, this is an issue open for debate.

The bottom line – ING has a voting right of 19.51% in ING Vysya Bank. It cannot make a decision for 100% shareholders. This deal should have been put to vote first and I can guarantee you, this deal would have been struck down by shareholders. In fact, I have spoken off the record to some institutions and they are already planning to write to the RBI. The 57.37% shareholders classified as minority shareholders actually control the voting rights and they have every reason to ask for a better deal. This deal will face major hurdles from minority shareholders and for good reasons.

Disclaimer: These are my personal views.

Friday, November 21, 2014


Quick comment: The merger of Kotak and ING would create the fourth largest private bank behind ICICI Bank, HDFC Bank and Axis Bank. However, the combined market cap of Kotak and ING Vysya Bank now already equates the third largest bank Axis Bank – But on all parameters, Axis Bank is nearly double of the combined entity of Kotak + ING. Is the market justified in this? Well that’s stock market for you…

PARAMETER                KOTAK + ING               AXIS BANK
Market Cap                   Rs 1.11 lakh cr              Rs 1.1 lakh cr
Branches                      1214                             2402
ATMs                            1794                             12,922
Income                          Rs 13,576 cr                  Rs 19,356 cr
PAT                              Rs 3,123 cr                   Rs 6,218 cr
Assets                          2 lakh cr                        3.8 lakh cr        
Advances                      1.2 lakh cr                     2.3 lakh cr
Deposits                       1.1 lakh cr                     2.8 lakh cr
ROE                             12.8%                           18.2%

Profit per employee        Rs 7.8 lakh                    Rs 15.4 lakh

Thursday, November 20, 2014


There is a group of people on twitter including some journalists and editors trying to suggest that Adani managed a loan from SBI because of his "alleged" proximity to prime minister Modi. One such editor, recently tweeted an article saying “Adani group, already $10 bn in debt, gets $1 bn loan”…Now, one can only laugh at this kind of statement.

First of all, as clarified to the Bombay Stock Exchange by the Adani group – the loan is not final yet. There is a difference between MOU and final agreement. Here is what Adani has told exchanges.

Adani Enterprises Ltd replied stating "The Company has signed Memorandum of Understanding (''MOU") with State Bank of India ("SBI") wherein SBI has agreed in principle to consider extending financial assistance of an amount upto USD 1 bn for development of Carmichael coal mine. This is, however, subject to SBI's due diligence and internal credit approval and also pursuant to the definitive understanding/agreement to be executed between the parties."

Note the phrase in bold– there will be due diligence by SBI. Raise this issue if they approve the loan without appropriate collateral in place or without being satisfied by the viability of the project. Anyway that’s a technical issue, so we move on.What exactly is this project and how did Adani manage to get this? Let’s take a look at a Reuters story just to put things in perspective

"This project has the potential to be the largest coal mine in Australia and one of the largest in the world," Queensland deputy premier Jeff Seeny said in a statement.
The state's report, which set 190 conditions for Adani to meet, including compensating landholders affected by any harm to water supplies, now goes to Australia's environment minister for a final decision.

Now this is a $15 bn project, won by Adani fair and square after meeting 190 conditions set by Australian government and more importantly, this is not in India. Unless you want to brand the entire Australian decision making body also a Modi agent, you would want to believe that there is nothing wrong in winning a contract in Australia

Now coming back to the loan for a group which has a long-term debt of $10 bn – yes, it has – but the group also has a market capitalization of $20 bn!! Ever heard of a concept called the debt/equity ratio? It has a networth of nearly $5 bn. For a power, infra, port conglomerate – this is a reasonably healthy ratio.

For me, the biggest question is “Has Adani ever defaulted on any loan”? – The answer is no.
This is an absolute non issue. If you want to raise bad loan issues, go chase Mr Vijay Mallya –whose Kingfisher Airlines kept getting loans from PSU banks under the tenure of previous governments.

Oh and one more thing, yes Adani group has debt of $10 bn – but 60% of that, or nearly $6 bn is not even raised in India – it’s overseas debt. Go find out all those Adani agents in these countries.

Disclaimer – These are my personal views.