The Hindu : IndusInd Bank-ALF in merger mode

Online edition of India's National Newspaper
Thursday, Dec 11, 2003

Business

Business

IndusInd Bank-ALF in merger mode

By Our Special Correspondent

CHENNAI DEC. 10. The board of Ashok Leyland Finance (ALF) today gave its in-principle approval to a proposal mooted by Indusind Bank Ltd. for `consolidation of the business of the two' by way of a merger.

IndusInd Bank and ALF have a common promoter in the Hinduja group.

The board, which met here today, also decided to take appropriate steps to take the proposal forward.

S. Nagarajan, Managing Director of ALF, said the board had taken a positive view of the merger proposal as it felt that a `bank format' would yield better value for all the stakeholders of the company in a longer-term. Further, the board also considered the `synergistic benefits' that would flow from a larger entity post-merger.

The mode of merger would largely depend on the valuation, it was explained. An already existing business committee within the organisation comprising the Chairman, Managing Director and couple of directors would look into the entire gamut of issues related to the merger. Indications were that the company would also take the help of an independent valuation agency. Mr. Nagarajan said the process would take 4-5 months to complete. Should the entire process be completed quickly, the merger could take retrospective effect from March 2003.

Insiders admitted that there was always this inevitability of merger given the fact that all the entities involved in this instance belonged to the Hinduja group. Further, the fast-changing environment also had its share of contributions to this inevitability.

Though various possibilities were speculated on the likely structure of the bank post-merger, it is quite likely that the bank will opt for an independent retail division under it. Given the expertise of ALF in retail lending, it will be prudent for the bank to leverage this talent through creating an independent division post-merger. It is quite possible that other retail activities of the bank are transferred and consolidated under one division. "Integration of ALF personnel and people is important. But it is not an insurmountable problem," sources said.

Insiders were also not unduly worried about the shareholder profile of the bank post-merger. Though commercial vehicle maker Ashok Leyland, the flagship company of the Hindujas, holds around 63 per cent in the around Rs. 31.32-crore equity capital of ALF, its holding in the post-merger IndusInd Bank will be in the vicinity around 10 per cent or so. IndusInd Bank has a capital base of Rs. 220.23 crores.

The merger will beef up the holding of Hindujas in the bank by a few percentage points, depending on the swap ratio. More than this, it can give the group additional voting rights (because of Ashok Leyland holdings post-ALF merger). This should provide the Hindujas a lot of elbowroom in managing the bank.

ALF at present has redeemable preference shares totalling around Rs. 97 crores, around Rs. 50 crores from Ashok Leyland at 9 per cent contracted in November 2000 and Rs. 47 crores from GE contracted at 5.25 per cent in March this year. It had redeemed the preference shares worth Rs. 50 crores contracted from HDFC at 9 per cent sometime ago. Though it had on its books CPS (cumulative preference shares) worth Rs. 51 crores, these had since been converted into equity shares, taking the share capital of the company to the present level.

Sources said in the wake of the current happenings, ALF had deferred its plan to raise additional funds to the tune of around Rs. 105 crores.

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