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Indiabulls to Make $58 Million Bid for United Western (Update3)
By Sumit Sharma
Sept. 8 (Bloomberg) -- Indiabulls Financial Services Ltd., a securities company whose shares have risen 13-fold in two years, joined the bidding for insolvent lender United Western Bank of India, its first attempt to buy a bank.
India's third-fastest growing financial services company plans to offer about 2.7 billion rupees ($58 million) in stock for the rural lender, Indiabulls said in an e-mailed statement yesterday. Citigroup Inc., Standard Chartered Plc. and ICICI Bank Ltd., are among 10 banks interested in United Western's 230 branches, mainly in the countryside around Mumbai, the nation's financial capital.
``Indiabulls can easily get into banking through this route and also acquire size quickly,'' said U.P. Bhat, who manages the equivalent of $111 million at Canbank Investment Management in Mumbai and doesn't own any bank shares.
Indiabulls, which counts Indian billionaire Lakshmi Mittal, the world's fifth-richest man, Goldman Sachs Group Inc. and Merrill Lynch & Co. among its investors, began offering online brokerage services in 2000. The company sells financial products and services to 300,000 customers in 124 cities across India. Foreign institutional investors own 38 percent and founders Sameer Gehlaut, Rajiv Rattan and Saurabh Mittal hold 31 percent.
Expression of Interest
New Delhi-based Indiabulls said it will offer one of its shares for every six of United Western, and will submit an expression of interest to the central bank. United Western has 53.77 million shares. Indiabulls will give United Western stockholders 9 million of its shares if it receives permission for the acquisition. A merger will strengthen the Satara, Maharashtra-based lender's capital, Indiabulls said.
Indiabulls stock gained 2.3 percent to 306.75 rupees at 11:07 on the Bombay Stock Exchange.
``It's a revenue-enhancing opportunity for us,'' said Gagan Banga, an Indiabulls director, said from Mumbai. ``We feel there is value for both us and Western United Bank and that's why we are hopeful we have a chance.''
The Reserve Bank of India on Sept. 2 told United Western Bank to shut operations because its capital was insufficient to cover losses. The lender had lost money over the past two years.
``The strength of United Western Bank lies in its branch network,'' said Sanjay Sinha, who manages $1.9 billion as the head of equity at SBI Mutual Fund in Mumbai, and owns shares of State Bank of India, ICICI Bank Ltd. and Punjab National Bank. Until 2009, acquisition of a weaker bank is the only way to take over a bank under Reserve Bank of India rules, he said.
Growth Story
Indiabulls shares have risen more than 13 times since the company's shares started trading in Sept. 2004. The company's average annual profit has grown 180 percent in the past six years on revenues that have risen an average 168 percent, Banga said. Only JM Financial Ltd., a brokerage, and Yes Bank Ltd. Have delivered faster sales growth in their latest financial year, according to data compiled by Bloomberg.
Lakshmi Mittal, the chairman of Rotterdam-based Mittal Steel Co., owns 6.8 percent in Indiabulls Financial Services Ltd. Mittal may invest in Indiabulls' housing finance unit, The Times of India said yesterday, citing no one. Mittal bought a 10 percent stake in Indiabulls Credit Services this year, the newspaper said.
Revival plan
The board of United Western yesterday submitted a proposal to infuse 3.5 billion rupees to help it revive operations.
Under the revival package, Housing Development Finance Corp., India's largest home mortgage lender, will invest as much as 700 million rupees and Infrastructure Development Finance Corp., which finances public works, will put in 350 million rupees. The plan included possible investments by the Maharashtra government and SICOM Ltd, a state lender to industrial units. The revival proposal is subject to the central bank's approval.
The bank is attractive to investors because of its strong rural base in Maharashtra, which may help win business from cotton and sugarcane growers in the state.
Shares of United Western Bank, which declined as much as 56 percent on Sept. 4, rose 10 percent to 21 rupees at 11:07 a.m. on the Bombay Stock Exchange.
