LVB shareholders pin hope on legal recourse
Shares of Lakshmi Vilas Bank (LVB) looked up on Thursday, after staying locked in lower circuit limits for six consecutive days, as the NSE and the BSE decided to suspend trading in the stock.
The move will help prevent further erosion in LVB’s share price, which has slumped more than 53%, thanks to the Reserve Bank of India’s (RBI) move of merging the embattled lender with DBS Bank.
Meanwhile, on Wednesday, the Union Cabinet approved DBS Bank’s plan to take over capital-starved LVB with effect from November 27, paving the way for the first such rescue by a foreign lender.
The deal offers nothing for LVB shareholders.
In 2004, Global Trust Bank (GTB), which went bust, was merged with Oriental Bank of Commerce (OBC), and the GTB shareholders received nothing.
At the end of September, some 12 foreign institutional investors (FIIs) held 8.55% stake in the lender. They have consistently reduced their holdings in it in last five quarters from 16.45% at the end of June quarter. Mutual funds, on the other hand, hiked their stake in the lender to 6.40% in the September quarter, from 4.78% in the quarter before.
Retail investors own nearly 23.98%cent stake at the end of September, compared with 21.14% they had held at the end of December 2019.
All of the bank’s equity, including the shareholding of Indiabulls Housing Finance (4.99%), Srei Infrastructure Finance (3.34%), LIC (1.62%) and promoter ownership of 6.8%, as well as stakes held by retail investors, are set to be extinguished as the draft scheme of amalgamation says that the entire paid-up capital of the bank will be written off.
The scheme suggested by RBI leads to a very raw deal to LVB shareholders. It’s an ‘amalgamation’ of assets and liabilities, and not a conventional merger (involving exchange of stocks), which could have given LVB shareholders equity stake in the new entity. The deal structure is unfair for shareholders of the bank.
There is always a legal recourse available, it is very unlikely that there will be any outcome out of it in the case of LVB, even as there seems to be lack of transparency on the valuation.
Earlier this month, LVB said its net loss widened to Rs 397 crore in the quarter ended September, compared with a net loss of Rs 357 crore in the year-ago period. Its net interest income dropped 28% to Rs 79.5 crore.
Gross NPA stood at 24.45% as at end September, compared with 21.25% a year ago.
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