Bandhan Bank didn’t pay control premium for Gruh Finance

Amid concerns that Bandhan Bank overpaid for taking over Gruh Finance from HDFC, Bandhan Bank has defended the deal, contending that the acquisition has happened without any controlling premium.

The deal brings one of the most efficiently run home finance business specifically targeting small home owners with a proven business model to Bandhan Bank, which itself targets small borrowers.

“Since both the companies are listed (Bandhan Bank and Gruh Finance), the exchange ratio was determined by exchange traded prices on which we have no control. That said, the deal gives us a control over the Gruh without having to pay a control premium, which normally happens in any such deals. As against that, Bandhan’s offer was valued at a discount of 7-8% to Gruh’s market price at that time,” Bandhan Bank founder and managing director Chandra Shekhar Ghosh told DNA Money.

“The merger also gives us Gruh’s seasoned team of professionals, who have been managing the most efficiently run housing finance business in the country with low non-performing asset base and a proven business model,” Ghosh said on the sidelines of the annual regional session of industry body CII.

Bandhan Bank inked a deal in January to acquire HDFC Ltd-promoted affordable housing finance firm Gruh Finance.

The share exchange ratio – 568 equity shares of face value of Rs 10 each of Bandhan Bank to be issued for every 1,000 equity shares of face value of Rs 2 each of the housing finance company – was seen as negative for both the entities, and both the scripts witnessed heavy selling post merger announcement.

From a level of Rs 552 per share at the beginning of January, Bandhan Bank now trades at Rs 499 while Gruh has dropped from Rs 322 to Rs 265 during this period, indicating that investors as well as analysts have viewed the deal as pricey for both Bandhan Bank as well as Gruh, while the sole beneficiary of the deal is considered to be HDFC, which got a good price for the deal for its 57.8% stake along with a 15% stake in the merged entity.

Ghosh sees a significant synergy between the operations of Gruh, which is mostly into small-ticket rural and small town affordable dwelling units and that of Bandhan Bank, which consists mostly of micro-lending to individuals.

“A small borrower, whenever she sees her standard of living improving, always aspires to own a brick house. So every small customer of Bandhan Bank is a potential customer for housing loans,” Ghosh said.

Post merger, Bandhan would be retaining Gruh’s brand. “For us, Gruh would be a separate business vertical with the brand Gruh Loans retained.”