HDFC Bank Ltd., India's third largest, agreed to acquire Centurion Bank of Punjab Ltd. for about 95.1 billion rupees ($2.38 billion) in stock to narrow the gap on ICICI Bank Ltd.
Centurion Bank shareholders will receive one HDFC Bank share for every 29 held in the nation's biggest banking takeover, HDFC Bank said in a statement to the Bombay Stock Exchange today. Centurion Bank fell 13 percent to 48.8 rupees at 2:30 p.m. in Mumbai, trimming its market value to $2.29 billion.
HDFC Bank will add 2.5 million customers at 393 branches, extending its reach before overseas lenders are allowed to buy local rivals. The central bank plans to lift curbs on Citigroup Inc. and HSBC Holdings Plc next year to spur competition in the world's fastest-growing major economy after China.
The deal ``is positive for HDFC Bank as it has become more difficult to set up branches and get talent,'' said Sandeep Sabharwal, who oversees $3.2 billion as chief investment officer at Mumbai-based J.M. Financial Mutual Fund. ``Shareholders of Centurion Bank could be disappointed as they expected a ratio of about 1:25.''
HDFC Bank fell 4 percent to 1,415.80 rupees in Mumbai. Bloomberg News calculated the value of the transaction based on Centurion Bank's shares outstanding and HDFC's closing price of 1,474.95 rupees on Feb. 22. The companies declined to comment on the price.
`Dying for People'
HDFC Bank Managing Director Aditya Puri said a limited supply of skilled workers has made it tougher to expand in India, where the lender trails State Bank of India and ICICI Bank. ``We are dying for people,'' he said.
Centurion Bank Chairman Rana Talwar, who led a restructuring of the company after a 2003 bailout, said agreeing to HDFC's offer was a ``far superior option'' to waiting for a potential approach from an overseas bank when limits on foreign ownership are loosened.
The combined company will have 1,148 branches and assets of about 1.5 trillion rupees, with HDFC Bank's 1.25 trillion rupees, and Centurion's 250 billion rupees, the banks said in Mumbai.
The acquisition may trigger more takeovers as Indian banks jostle for position before investment rules are relaxed. Among potential targets are smaller lenders including Karnataka Bank Ltd. and Karur Vysya Bank Ltd., analysts have said.
Karnataka Bank, based in Mangalore, rose 3.9 percent today to 260.85 rupees, taking gains this year to 17 percent. Karur Vysya advanced 1.2 percent in Mumbai and is up 1.8 percent since Dec. 31.
Even after taking over Centurion Bank, HDFC Bank's assets would remain less than half those of ICICI Bank, India's second largest by that measure with $96 billion as of Dec. 31.
``We believe the deal is very expensive,'' Parthapratim Gupta, an analyst at India Infoline Ltd., wrote in a note to clients. He is reviewing his ``buy'' rating on HDFC Bank for a possible downgrade. Centurion's Talwar said the valuation is ``fair.''
Housing Development & Finance Corp. may invest 39 billion rupees in HDFC Bank to maintain its shareholding in the Mumbai- based lender. Housing Development is part owned by Citigroup, the biggest U.S. bank by assets.
Housing Development has no plans to merge with HDFC Bank, Chairman Deepak Parekh said.