6 March 2020
Sector Update | Financials
Financials
Swap ratio for the merged banks
Swap Ratio
PNB merger with OBC and United Bank
Oriental Bank of Commerce
United Bank of India
Andhra Bank
Corporation Bank
Syndicate Bank
Allahabad Bank
Merged Entity Snapshot
3QFY20 (INR m)
Share Capital
Res. & Surplus
Net-worth
O/S Shares (m)
BV (INR)
Accretion to BV (%)
ABV (INR)
Accretion to Adj.BV (%)
Current Mkt Cap
302,516
60.0
1.150:1
0.121:1
0.325:1
0.330:1
0.158:1
0.115:1
Share swap ratios announced for PSBs mega merger
Favorable for PNB, OBC and Syndicate Bank
UNBK merger with Andhra and Corp Bank
Canara Bank merger with Syndicate Bank
Indian Bank merger with Allahabad Bank
PNB Combined
13,475
18,821
948,802
967,624
9,410.7
102.8
8.6%
65.2
8.6%
422,539
624,270
637,745
6,737.6
94.7
PSBs in the board meeting held on 5 Mar’20 have approved the merger and
announced the share swap ratios. We believe that the share swap ratios are
favorable for PNB (book value accretion of 8.6%) and also OBC/Syndicate Bank
shareholders (premium of ~10%/~5%). On the other hand, the swap ratio
implies a discount of ~27%/~32%/36% for United/Corporation/Allahabad Bank
shareholders.
On capitalization levels, the CET-1 ratio improves by ~26bp to 10.9% for PNB,
but declines by ~65bp/~24bp/~268bp to 10.7%/10.1%/10.1% for
UNBK/CBK/INBK.
Asset quality ratios of the merged banks weaken further, with the GNPA ratio
for PNB/UNBK /CBK/INBK increasing to 16.5%/17.2%/9.8%/13.0%.
While the process of merging multiple entities will present its own set of
challenges in the near term, PSBs stands to benefit over the long term. We
expect tepid credit growth and elevated credit cost in the near term. We will
look to revise our estimates on gaining more clarity on growth and earnings
trajectory. We maintain Neutral on both PNB and Indian Bank with an
unchanged target price.
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Implications of shares swap ratio; favorable for OBC, Syndicate Bank
Merged Entity Snapshot
3QFY20 (INR m)
UNBK Combined
Share Capital
Res. & Surplus
Net-worth
O/S Shares (m)
BV (INR)
Accretion to BV (%)
ABV (INR)
Accretion to Adj.BV (%)
Current Mkt Cap
134,688
62.5
34,228
342,407
376,635
3,422.8
110.0
63,709
621,478
685,186
6,370.9
107.6
-2.3%
62.4
-0.2%
250,693
PNB + OBC + United Bank:
Shareholders will get 1,150 and 121 equity
shares of PNB for every 1,000 shares of OBC and United Bank. The swap
ratios imply a premium of ~10% for OBC, but a discount of ~27% for
United Bank.
Canara Bank + Syndicate Bank:
Shareholders will get 158 equity shares of
CBK for every 1,000 shares of Syndicate Bank. The swap ratio implies a
premium of ~5% for Syndicate Bank shareholders.
Union Bank + Andhra Bank + Corporation Bank:
A swap ratio of 325 and
330 equity shares of Union Bank was announced for every 1,000 shares of
Andhra Bank and Corporation Bank, respectively. The swap ratios imply a
discount of ~5% for Andhra Bank and ~32% for Corporation Bank
shareholders.
Indian Bank + Allahabad Bank:
Shareholders will get 115 equity shares of
INBK for every 1,000 shares of Allahabad Bank. The swap ratio implies a
discount of ~36% for Allahabad Bank shareholders.
Book value accretion for PNB but dilution for CBK/UNBK/INBK
Based on the announced share swap ratios, the book value per share for PNB
increases by 8.6% to ~INR103. However, the book value per share gets diluted
for UNBK/CBK/INBK by 2.3%/2.1%/10.8% to ~INR108/INR419/INR340. On
capitalization levels, the CET-1 ratio for PNB improves by ~26bp to 10.9%, but
declines by ~65bp/~24bp/~268bp to 10.7%/10.1%/10.1% for UNBK/CBK/INBK.
Merged Entity Snapshot
3QFY20 (INR m)
Share Capital
Res. & Surplus
Net-worth
O/S Shares (m)
BV (INR)
Accretion to BV (%)
CBK Combined
10,302
14,543
594,207
608,749
1,454.3
418.6
-2.1%
430,310
440,612
1,030.2
427.7
Asset quality weakens further for anchor banks
Asset quality ratios of the merged banks weaken further, with the GNPA ratio
for PNB/UNBK /CBK/INBK increasing to 16.5%/17.2%/9.8%/13.0% (v/s
ABV (INR)
248.3
224.8
16.3%/14.9% /8.4%/7.2% as on standalone 3QFY20). Provision coverage ratio
Accretion to Adj.BV (%)
-9.4%
improves for Union, Canara Bank and Indian Bank, but declines for PNB. In our
Current Mkt Cap
143,666 202,796
view, credit cost will remain elevated for anchor PSBs in FY21 as well.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com)
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);
Yash Agarwal
(Yash.Agarwal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.