Nisthar Cassim Colombo

NDB buys 39% stake of NDB Bank for over Rs. 700 million
Pays twice the Net Asset Value to up stake to 62% as part of the long-awaited merger
By Nisthar Cassim
NDB yesterday bought 39% stake in its NDB Bank for over Rs. 700 million as part of its efforts to merge the two institutions, a process originally planned over two years ago.

The development finance bank was responsible for bulk of the 23.9 million shares of NDB Bank traded between a low of Rs. 27.50 and a high of Rs. 31 before closing at the latter level, up by Rs. 3.50 from Thursday. The larger blocks amounting to 22.5 million shares were bought at Rs. 31 each. All shares traded were X-Dividend.

Prior to yesterdays purchase NDB held 23% stake in the commercial bank, which paid Rs. 1.25 billion to acquire the operations of ABN AMRO Bank in Colombo in October 2001. Now the NDB owns 62% stake in the NDB Bank.

Major sellers included Janashakthi Group (15%), Goldquest (10%) Renuka Hotels Group (9%) and DPMC Financial Services (6%) and several high networth investors. For most of the sellers the average cost was around Rs. 20, which confirmed that all achieved a tidy profit from the sale. The net asset value of NDB Bank's share is around Rs. 15 while its highest price in 2003 was Rs. 27. In that context yesterday's peak of Rs. 31 reflects a 15% premium on its highest price and 106% compared with the Net Asset Value.

Earlier on some of the major shareholders were skeptical about NDB's failure to come up with an offer price soon after the Central Bank ruled (See Daily FT report on February 27) that it could buy up to 51% of the commercial banking venture through the market.

Indeed at the NDB's Annual General Meeting held early this week, this issue was raised and it was assured that an offer price would be indicated to the larger shareholders. With yesterday's purchase NDB has triggered the SEC's Takeovers and Mergers Code and would make a mandatory offer at Rs. 31 per NDB Bank share.

The Central Bank decision to allow NDB to acquire controlling stake was made by the Monetary Board in February as an interim measure until the full merger of NDB and NDB Bank (NBL) takes place. However this approval was subject to the condition that in the event of NDB acquiring a stake of more than 51% of NBL as a result of the operation of the Takeovers and Mergers Code, the excess would be disposed of within a period of one year from the date of acquisition of such excess.

The merger between NDB and NBL has been longstanding as the necessary amendments to the NDB Act is yet to be passed in Parliament. The Bill was scheduled for the second reading in mid February but it got pushed back as the President dissolved the Parliament overnight on February 7.

The day when the fresh ruling of the Central Bank was announced NBL saw a fair degree of stock market focus its shares. Around 1.2 million NBL shares traded between a high of Rs. 29 and a low of Rs. 22.50 before closing at Rs. 26.25, up by Rs. 3.50 from its previous close.Despite the high price paid analysts expect the acquisition of 51% stake in NBL to boost earnings potential of NDB since the delay in the merger had handicapped the parent.

In 2003, NBL boosted its gross income by 32% to Rs. 1.7 billion while after-tax profit grew soared by 92% to Rs. 174.6 million. It also declared a 5% dividend (first since inception) for 2003 in addition to fully writing off the outstanding goodwill of Rs. 164 million in 2003. Some of the major shareholders were concerned with the NBL's decision to write off the outstanding in one go. NBL's AGM is scheduled for April 27.

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Thursday, 19 June 2014

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Monday, 9 June 2014

NDB buys 39% stake of NDB Bank for over Rs. 700 million by Nisthar Cassim