Some institutional shareholders of the crisis-ridden Lakshmi Vilas Bank (LVB), who are set to lose their entire investment after the proposed amalgamation of the bank with DBS India, said they are weighing their options, including litigation. A final decision will be taken after consulting with legal experts, they added.
At least two institutional investors of LVB told Moneycontrol that they are discussing their options with legal counsel. “This (draft amalgamation scheme) came last evening. We will discuss. By Wednesday evening we should be able to understand what are the legal sides of this move and what options are available for us,” said a representative of one of the investors.
Another equity investor said the RBI move caught them by surprise and ‘shocked’ the team. “If this is the scenario, what assurance will equity investors in Indian companies have that their money is safe,” the investor asked, adding that “all options are on the table”.
None of the investors wants to be identified.
On Tuesday, the RBI announced a draft amalgamation scheme to merge LVB with DBS India after a merger attempt with Clix Group failed. The government has put LVB under moratorium for a month and fixed a Rs 25,000 cap on withdrawals by all creditors.
Institutional equity investors in LVB include Indiabulls Housing Finance Ltd, which had a 4.99 per cent stake in the bank as of September 2020, Prolific Finvest Private Ltd (3.36 per cent), Srei Infrastructure Finance (3.34 per cent), MN Dastur and Co Pvt Ltd (1.89 percent), Capri Global Holdings Pvt Ltd (1.82 per cent), Capri Global Advisory Services (2 per cent), Boyance Infrastructure Pvt Ltd (1.36 per cent) and Trinity Alternative Investment Managers (1.61 per cent).
Why the investors are upset
According to the draft scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India, the entire amount of the paid-up share capital will be written off. “On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off,” the draft scheme states.
“As it appears in the draft scheme, the value of the equity capital will be zero,” said JN Gupta, former executive director and Co-founder and MD of proxy advisory firm Stakeholders Empowerment Services (SES).
However, this is only a draft scheme. The final scheme will be prepared after factoring in feedback from various stakeholders.
“On and from the appointed date, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority,” the draft scheme of amalgamation stated.
LVB shares closed at Rs 15.60 apiece on the BSE on Tuesday.
Intervention
On Tuesday evening, the first statement on the issue emanated from the central government. It announced a one-month moratorium on the bank, citing its deteriorating financials and failure to come up with a revival plan on its own.
This was soon followed by two separate notifications by the RBI on superseding the Board of the Bank and about the draft scheme of amalgamation of LVB with DBS Bank.
“The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to the Reserve Bank and the bank’s efforts to enhance its capital through amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end,” the RBI said in its statement on LVB.
LVB has been trying to clinch a deal with Clix Group for a merger but this fell through as the two sides couldn’t draw up a concrete scheme to present to the regulator.
Last year, LVB had attempted a merger with Indiabulls, which, however, failed to get the RBI’s assent. Informal talks were also held with another NBFC. Those, too, fell flat.
In the case of Clix Group, both parties had completed the larger due diligence. In October, LVB received an indicative non-binding offer from Clix Group for the proposed merger. But, the two sides could not take the merger ahead.
Dismal financials
In the second quarter, LVB’s gross non-performing assets (GNPAs) stood at 24.45 percent, while net NPAs stood at 7.01 percent. The bank’s Tier 1 Capital ratio has turned negative; the overall Capital Adequacy Ratio (CAR), as per Basel Ill guidelines, was at a negative 2.85 percent as of September 30.
The bank’s business has shrunk over the year. Total business stood at Rs 37,595 crore at the end of September 2020, as against Rs 47,115 crore at the end of September 2019.
The net loss after tax amounted to Rs 396.99 crore for the quarter ended September 30, as against a net loss of Rs 357.18 crore in the year-ago quarter.
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