ING Vysya Bank: Exercising ‘rights’ - Views on News from Equitymaster

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ING Vysya Bank: Exercising ‘rights’

Dec 20, 2004

The ING Vysya Bank scrip was on fire last week, with the private bank offering rights shares at a price of Rs 45, at a point when the scrip was ruling over Rs 500. The announcement - possibly the biggest discount on rights issue offered by an entity, pushed the stock by 19% (on Friday).The fundamental performance…
ING Vysya Bank, for the half-year ended September 30, 2004, reported a net loss of Rs 492 m, as against a profit of Rs 580 m during the same period, last fiscal. This was mainly due to significant losses incurred from treasury operations, to the tune of Rs 1.3 bn, for the first two quarters this fiscal, as against Rs 1.2 bn profits during the corresponding period last year.

Apart from trading losses, the bank also transferred securities worth Rs 7.1 bn from available-for-sale (AFS) category to held-to-maturity (HTM) category in September, which entailed Rs 260 m provisioning for marked-to-market losses. However, its profits from core banking activities witnessed a surge (Rs 480 m), which mitigated the impact of treasury losses on the bank’s bottomline.

The bank also made consistent efforts for improving its spread, by garnering low cost funds and augmenting yields on advances and investments.

The rights issue is not doubt a windfall for the existing shareholders, who would benefit from the difference in the market price (is likely to get adjusted to Rs 150 levels based on current price) and offer price (Rs 45), needless to mention - better liquidity of the scrip. Gains will accrue on account of capital appreciation as well as revenue profits. Assuming that all the shareholders fully exercise their rights, the following is an estimation of the change in shareholding .

Shareholding after the exercise of rights…
Shareholder pre-issue (m)% post-issue (m)%
Indian promoters (GMR group)0.10.3%0.240.3%
Foreign promoters (ING group)9.943.6%39.643.6%
Institutional Investors7.633.5%30.433.5%
Indian public3.515.4%1415.4%
Others1.67.2%6.567.2%
Total no.of shares22.7 90.8 

Post issue, the bank’s networth will get augmented by 39%, and this in turn is likely to amplify the bank’s bottomline by 43% (based on the bank’s historical ROE of 7.2%).

The post rights scenario…
FY05Pre issuePost issue
No. of shares (m) 22.7 90.8
Networth (Rs m) 7,935 11,000
PAT (Rs m) * 552 792
EPS 24.4 8.7
DPS 4.0 1.4
BVPS 350.8 121.1
Cash flow/share 40.3 14.4
P/E 24.7 17.2
P/ adj book value 2.3 1.6
* Estimated PAT assuming RoE to remain constant at 7.2%
* Assuming all rights shares fully subscribed

What to expect?
The stock is currently trading at Rs 685, implying a price to adjusted book value ratio of 2.5 times its FY05 earnings. The bank's overall performance so far in FY05 has not been very encouraging. Lack of growth in the wholesale lending segment is also a cause of concern. Despite a restructuring that was carried out by the parent group, consistency in performance does not seem to be setting in. Nevertheless, the shift of investments from AFS to HTM category is likely to condense any future trading losses. Also, the government’s stand on liberalizing the FDI norms for this sector (foreign holding could go upto 74%) and a possible revision in the voting rights cap, sounds enthusing. The bank has not specified the record date for the rights issue as yet. In our view, despite the concerns on the profitability front, existing investors will do well to exercise their rights fully.


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