INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

RANA TALWAR SET TO BUY LKB FOR RS 300 CRORE

RANA Talwar is back to what he does best. After taking over two banks — Centurion Bank and Bank of Punjab — the former Stanchart CEO and head of Sabre Capital is about to strike a deal with Lord Krishna Bank (LKB), a Kerala-based, unlisted private bank. Centurion Bank of Punjab (CBoP), where Mr Talwar is the chairman, will take over LKB, subject to RBI approval.

Sources said the deal has been pegged at around Rs 300 crore and would be done through a share swap transaction. Both the bank boards will meet on Saturday to decide on the merger. LKB promoter Mohan Puri, who controls 65% equity in the bank, has been under pressure from RBI to pare his holding. According to sources, Mr Puri will be offered a little below 6% in the merged entity. For CBoP, the merger will help the bank strengthen its position in the southern states. Incidentally, rating agency Care on Friday downgraded the tier-II bond issue of LKB from Care A- to Care BBB+ due to "delay in the expected infusion of capital and consequent constraints on growth".

Mr Talwar, who is the majority shareholder in the London-based fund Sabre Capital, had first acquired Centurion, which later took over Bank of Punjab, to form the merged entity CBoP. The Burmans of Dabur, who have a 5% stake in LKB, will hold around 0.5% post merger. Bank Muscat, which has a 22% stake in CBoP (the single-largest shareholder), will hold slightly over 20, while the Keppel group of Singapore , which has a 9.4% holding through Kephinance Investment Mauritius, will end up with about 8.5%.

Officials of both banks declined to comment. Sources said the regulator has been informally sounded out on the proposed deal. The merger will lower the foreign shareholding of CBoP, currently at just below 73% (FDI 35.52%, FII 20.84% and GDR 16.37%), to around 65%. This will again give FIIs some headroom to buy the stock. On Friday, the scrip closed at Rs 23.4, up 1.52%.

LKB, with 112 branches, has a strong presence in South, particularly in Kerala, where it has 65 branches. Centurion BoP, which has 249 branches, has a strong presence in the west and north. Together with CBoP's 40 branch licences and around 15 new branch licences of LKB, the merged entity will have a network of over 400 offices.