TPG to offer higher price for Union Bank minority shareholders
Monday, 18 August 2014 00:26
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TPG, the leading global private investment firm which has committed one of the biggest investments in to Sri Lanka’s financial sector, has agreed to pay a higher price for minority shareholders of Union Bank of Colombo Plc (UBC).
The agreement with UBC to acquire majority control of 70% at Rs. 15.30 per share (almost equal to UBS’s book value) will be paying Rs. 25 per share in the subsequent mandatory offer to minority shareholders. The price it will pay is same as the UBC’s IPO price a few years ago.
UBC in a fresh filing to the CSE on Friday said TPG will acquire 21.828 million shares or 6.25% of the existing capital and 2% of the enlarged capital post private placement at Rs. 25 per share. TPG will be paying Rs. 545.7 million in this exercise.
The promoters or the major shareholders of UBC (who control around 50% stake at present) have agreed not to sell out during the mandatory offer but offer the opportunity to retail and smaller shareholders if they are keen.
Out of 36,924 shareholders UBC has 33,454 shareholders who hold between 1 and 1,000 shares with a collective stake of 1.36% and a further 2,758 shareholders holding 1,001 and 10,000 shares each with a total shareholding of 2.46% and another 590 shareholders owning 4.2% by holding 10,001 and 100,000 shares.
The reason to offer a different higher price appears to be to give a higher equitable value to minority shareholders who may prefer to exit. This option by TPG reflects what some analysts described as “blended price” of Rs. 17 per share for their entry into UBC.
The overall deal worth a staggering $ 117 million or over Rs. 15 billion has pleasantly surprised the financial services industry, which is on a definite road of consolidation. The TPG move also signals one of the biggest foreign portfolio investments in the history of the CSE.
TPG, a leading global private investment firm, has over $ 59 billion of assets under management and has several success stories in Asia in turning around investments and selling off later at much higher value. Last year, TPG sold part of its stake in Indonesia’s Bank Tabungan Pensiunan Nasional Tbk PT to Japan’s Sumitomo Mitsui Banking Corp, putting it on course to earn more than 10 times its initial investment made in 2008. In Korea it entered into Korean First Bank and subsequently divested to Standard Chartered Bank.
The investment in UBC is TPG’s first frontier markets investment and augurs well for CSE, which has rebounded to be among five top performing markets as well as post-war Sri Lanka.
The TPG-UBC deal has been in the making for a year and involved a thorough due diligence exercise and was executed based on the strong relationship with UBC Chairman Alex Lovell.
The Government-initiated and Central Bank-facilitated financial sector consolidation envisages Sri Lanka having several commercial banks with each having a minimum of Rs. 100 billion in assets. UBC, which has Rs. 36.5 billion in assets (Rs. 39.7 billion at Group level) and a Tier 1 capital of Rs. 4 billion, was up for possible takeover by a local industry giant or merge. However the deal with TPG is a major breakthrough for a relatively smaller bank like UBC.
Once the planned TPG exercise is completed UBC will be ranked second in stated capital and among top five private banks in equity. These apart, TPG deal will significantly boost the credit profile as well as its stature locally. The TPG-UBC alliance also comes at a time when several in the banking industry struggling to find the perfect or most valuable partner in the quest for consolidation.
Amidst market challenges, UBC’s strategy since last year to look internally and improve processes and procedures as well as risk management systems along with the introduction of a new robust core banking system made it attractive for TPG.
With National Asset Management Ltd., (whose assets under management is now Rs. 15 billion up from Rs. 5 billion when UBC took over) and UB Finance Company, the Bank is keen to become a formidable financial services giant.
Under the deal, TPG will invest up to approximately $ 117 million in UBC through a combination of primary and secondary shares amounting to 742.156 million shares and representing 70% stake issued at Rs. 15.30 each, and 218.28 million warrants (at Rs. 0.30 each) that, if exercised (at Rs. 16 per share) in full within their six-year term, would increase TPG’s interest in UBC to 75%.
The deal is on the undertaking that TPG will reduce its eventual 75% stake to 15% in 15 years thereafter.
In the first six months of 2014, bottom line of UBC was down by 80% to Rs. 28 million whilst consolidated after-tax profit was down by 46% to Rs. 58 million. Group revenue was up by 2% to Rs. 2.19 billion.
Foreign holding in YBC is around 40% with top 10 shareholders being Vista Knowledge 18.5%, Sampath Bank 7.5%, Associated Electrical Corp 7.5%, Select Gain 6.7%, Alex Lovell 6.5%, EXSAB International Holding 4.3%, Jit Warnakulasuriya 4.2%, Rosewood Ltd 2.7% and S.P. Khattar 2.7%.
TPG is a leading global private investment firm founded in 1992 with over $ 59 billion of assets under management and offices in San Francisco, Fort Worth, Austin, Houston, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has defined itself as a regional leader in banking and financial services having invested $ 2.3 billion in 13 financial services companies in Asia as of December 2013.
