Chillin' out till it needs to be funded
Or, How the economic valuation at market prices has thrown the markets in disarray
It’s very satisfying, though a little strangely, to note the market reaction to Bank of Rajasthan’s final pricing for purchase by ICICI Bank. First let me get some mint writers and other acknowledgements out of the way. You will soon note that Chanda Kochchar would be asked and will reply in much the same manner on Television soon when she makes her whistlestop tour of the CNBC, NDTV and the rest of the dog and pony show.
Frankly, despite a very casual approach to accounting rules and a general laxity in willingness to enforce the law was , much to sadden my other banking colleagues, not the bete noire of the Bank of Rajasthan way of doing business. It was just another thing they did for the ethos and wealth saving strategies they lived by and there are a lot of these reasons why these old pvt sector banks have never been admitted to the ‘main street’ in Indian Finance. I would stop short at romanticising them however and just stop at the fact that their 500 branches bring a high amount of business to ICICI Bank’s book of INR 3.6 Trillion. BoR’s assets of INR 17k crores or $4.25 billion are rich in value with a low NPA of 1% and thus most Financial Analysts have given the valuation of 4.22 BOR shares for 1 ICICI share the green signal.
SEBI maintains that Tayals hold 55% in the bank and that would make them owners of nearly 1.87 crore ICICI Bank shares from new dilution by ICICI Bank, amounting to around 1.75% stake in the bank. ICICI Bank found it economic as always ( i can venture, they have it penned down in the guidelines) to invest in this deal on a 100% stock swap basis.
The rest is rather tiring and much will unfurl on its own in the next few days as the Tayals vie for media attention with Greece in the Indian context. Behold however, that the market, and much rightly, tries to bring down the ICICI Bank valuation to the paper terms of around $11 per share that is the value imputed from the ratio and thus 50% lower than the prices on BSE, NSE and the NYSE.