New valuation for UTI Bank-GTB merger, deal may hit snag

New valuation for UTI Bank-GTB merger, deal may hit snag
ENS ECONOMIC BUREAU

MUMBAI, MAR 14: The proposed merger of UTI Bank and Global Trust Bank (GTB) -- which was touted as the largest merger in the private banking sector -- is facing rough weather with the former appointing Deloitte Haskins and Sells for another valuation to arrive at a revised merger ratio. GTB is currently undergoing investigations from both Reserve Bank and SEBI for its exposure to the capital market and allegations of insider trading.

Both the banks had earlier approved a merger ratio of nine UTI Bank sharesfor every four GTB shares. However, with reports surfacing that there was insider trading in GTB shares prior to the merger announcement, UTI Bank is keen to arrive at the "right price". The SEBI-RBI enquiry follows reports that big bull Ketan Parekh had accumulated GTB shares before the merger announcement.

"If GTB shares were rigged up before the merger announcement, the earlier swap ratio is not the right one. It's fair enough that both the parties go for another valuation," said a UTI source. It is also learnt that UTI Bank made enquiries about the exposure levels of GTB. "UTI is obviously is not happy with the turn of developments," sources said.

Widening its probe from merely looking into ``unusual price movements'' in the GTB-UTI Bank pre-merger issue, the Sebi had recently decided to examine the possibility of insider trading in the entire affair. Top Sebi officials had said the aspect of insider trading would be looked into by the regulator during the course of its detailed probe into alleged price manipulation in the stocks of the two banks, particularly GTB, ahead of the merger announcement.

In fact, even as the managements of both the banks are going to town saying that the probe would have no impact on the merger and it would go through smoothly, the markets regulator appears to feel that there would, indeed, be a problem in the merger. This is so, since if the final probe findings do prove irregularities, it would take its toll on the legitimacy of the swap ratio of the merger. ``Even if 25 per cent of the ratio has been decided on the basis of market prices, that impact will surely be there,'' a Sebi source said.

Both Ramesh Gelli of GTB and UTI chairman PS Subramanyam have been saying there was no problem with the merger. However, the GTB case has also brought into sharp focus the whole issue of bank funding of brokers with broker Ketan Parekh's name being brought in as one who enjoyed large scale funding by the bank. This being the case, the Reserve Bank of India will also need to undertake a long, hard look at all the angles relating to the merger before it gives its final clearance, now that the issue has also begun engaging the attention of Parliament.

The Sebi report on the GTB case will be submitted to the RBI before the end of the month, and the regulator may make some key observations about why the prices moved ``unusually''. These observations hold the key to whether the merger will finally take shape.