To win over the small shareholders opposing its proposed merger with six public sector banks, State Bank of India (SBI) on Thursday announced a share swap scheme that gives investors more value for their holdings.
According to the plan approved by the board of India’s largest lender, investors in State Bank of Bikaner and Jaipur (SBBJ) holding 10 shares will get 28 shares of SBI.
Investors in State Bank of Mysore (SBM) and State Bank of Travancore (SBT) holding 10 shares will get 22 SBI shares each.
SBI will issue 44.2 million shares for 1,000 million shares of Bharatiya Mahila Bank. Since the two other associate banks — State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP) — are already wholly-owned subsidiaries of SBI, no share-swap is required.
This scheme would essentially mean a net gain of about 3.2 per cent for shareholders of SBBJ and 7.9 per cent for those of SBT, based on Thursday’s share closing price. Investors of SBM, however, stand to lose about 12.2 per cent.
Analysts’ view Analysts said that the share swap arrangement was positive overall.
JN Gupta, Co-Founder and Managing Director, Stakeholder Empowerment Services, said, “If you compare the valuations to the current market price, shareholders of State Bank of Mysore appear to be losing out. But the cut-off date for the valuation was May 15, so if you look at the prices as of that date, State Bank of Mysore shares were at ₹407, so even they have actually been given a favourable valuation.”
The merger plan was approved by the boards of all banks in May. This merger would create a ₹37-lakh crore entity, which is more than five times the size of India’s second-largest lender, ICICI Bank.
Hetal Dalal, COO, Institutional Investor Advisory Services, said, “The larger issue here is that for the minority shareholders of the subsidiary banks, it makes more sense to be part of a larger bank. At the same time, SBI needs to grow in size because its competitors in private sector banks are growing at a much faster rate. So the merger gives SBI’s balance sheet more heft.”
Union opposition The merger could still see opposition from employees’ union which has already gone on a strike once to protest the move.
S Nagarajan, General Secretary, All India Bank Officers’ Association, said, “The proposed merger of Associate Banks for creating a global bank is anti-development. There will be closure of branches, resulting in staff redundancies, curtailment of banking services and loss of employment opportunities.”
Abizer Diwanji, Partner and National Leader – Financial Services, EY, said that swap ratios were worked by looking at the relative values of the individual associate banks versus SBI.
“For this, we looked at their market capitalisation over a certain period, the comparable companies multiple metric (based on the median price-to-book value of comparable PSU banks) and their individual book values adjusted for net NPAs.
“We assigned a weightage for each of the three listed banks based on these metrics and assigned a premium or discount based on each bank’s performance.
“For Bharatiya Mahila Bank, we valued it at cash because it is essentially a start-up and most of its assets are government securities.”