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Bloomberg
Bandhan Bank Ltd, India’s newest lender, will combine with mortgage financier Gruh Finance Ltd in a $11.7 billion deal, bringing the bank closer to meeting shareholding rules and helping it accelerate expansion.
Investors in Gruh Finance, controlled by Housing Development Finance Corp, India’s biggest mortgage lender, will get 568 shares of Bandhan Bank for every 1,000 they own, according to exchange filings from the companies. The deal is valued at about 818 billion rupees ($11.7 billion), calculations based on closing share prices showed.
The transaction is meant to help Bandhan Bank founder and Chief Executive Officer Chandra Shekhar Ghosh comply with the Reserve Bank of India’s ownership rules, and will also allow the micro lender to expand into a new category of loans. India’s regulator has censured lenders for not meeting norms as the central bank tries to clean up an industry that’s been plagued by as much as $210 billion of stressed assets.
Shares of Gruh tumbled about 16 percent on Tuesday as the share-swap ratio was at a discount to its closing price. Bandhan Bank lost 3.7 percent, as the deal prompted investors to reassess the value of the lender, according to Bunty Chawla, an analyst at Batlivala & Karani Securities Pvt in Mumbai.
“With the swap ratio finalised, now the the price for Gruh will be completely dependent on the Bandhan Bank share price,†which looks overvalued given its price-to-book ratio, according to Chawla. The bank is trading at more than
six times the book value of its assets, data compiled by Bloomberg show. Others see the deal as positive for Bandhan and Gruh as well as HDFC. The merger will boost the three lenders’ profiles, resolve conflicts of interest and accelerate expansion in affordable housing, according to analysts at Sanford C. Bernstein & Co and Citigroup Global Markets Inc.