ING Groep may sell 43% stake in Vysya Bank, Kotak Mahindra Bank emerges top suitor
ING which also has to bolster capital to meet Basel III regulations, may get at least $600 million at current market prices, or even more for the stake.
ING, which has been selling assets across the Asian region and some in Europe itself to repay the Dutch government for bailing it out from the 2008 credit crisis, may exit the domestic banking business comprising retail, corporate and treasury, to focus on corporate banking, they said.
The group, which also has to bolster capital to meet the Basel III regulations, may get at least $600 million at current market prices, or even more for the stake depending on the transaction. There is no certainty that a deal will happen.
“As per long-standing policy, ING never comments on market rumour and speculation, so I will not be commenting to your questions,” said Carolien van der Giessen, ING Group, media relations officer in an email response.
ING received 10 billion euros in state aid from the Netherlands in 2008, while the government assumed the risks on 80% of its investments in US mortgage securities a year later to stem losses, Bloomberg News had reported. The firm has repaid 7.8 billion euros in aid and 2.4 billion euros in interest and premiums, and has pledged to repay the remainder by May 2015. Morgan Stanley is advising ING on the stake sale.
Besides selling its insurance business in Asia, including in India, ING sold it Canadian and the UK online bank as well. Its banking operations in Asia include Thailand and China.
Although ING Vysya may be an attractive asset for every private sector bank because of its clean books, 575 branches and loyal customers, Kotak Mahindra Bank seems to be best placed to benefit from the acquisition of ING Vysya, say analysts. “It is a very good business and it (ING Vysya) provides Kotak the opportunity to scale up,” said Bobby Parikh, chief mentor BMR & Associates, an advisory firm. Although Kotak’s market value is about six times that of ING Vysya, Kotak’s loan assets is about Rs 50,539 crore, compared with ING’s Rs 33,575 crore, regulatory filings show. ING’s Rs 40,000 crore of deposits, of which a third is low cost, and its customer loyalty may be the most attractive part.
But Kotak said it is not negotiating for a takeover.
“We have not been approached for purchase of shares of ING Group in ING Vysya Bank,” said a Kotak Mahindra Group spokesman in an e-mail response. “We have had no negotiations with officials of ING Vysya Bank on this matter.” For Kotak, it might make sense to go for a stock-swap deal since it could achieve twin objectives of the management, said one of the persons familiar with the thinking. There will be no cash outflow, and at the same time help founder Uday Kotak to reduce his stake in the bank to meet regulations.
The Reserve Bank of India last June directed. Uday Kotak to lower his stake in the bank to 10% over the next eight years. It is at 44% now, filings show. International banks in India are redrawing their strategy as the industry goes through tough capital requirements after the credit crisis. Institutions such as JPMorgan Chase & Co have decided to remain a corporate and investment banking company in India, and others such as Barclays are moving toward that, shedding retail. The Reserve Bank of India’s decision to possibly mandate local incorporation may lead to further changes.
RBI governor Raghuram Rajan’s change in policy direction not only allows limited licensing, but also dimmed the valuations of banks because of freeing up of branch opening, which used to be the main attraction for any takeover. Though India may be a small part of ING’s overall scheme of things, it may still retain a stake here. It had bought shares in a recent sale at Rs 611 apiece. “I will be surprised if they sell given that they bought these shares only recently,” said a chief executive of a private sector bank. “But with foreigners, anything can happen.”