SBI Caps seeks independent valuation on merger of arms

SBI Capital Markets (SBI Caps) has sought proposals from chartered accountant firms to provide independent valuation and the swap ratio for the merger of State Bank of India (SBI)’s subsidiaries and Bharatiya Mahila Bank (BMB) with the parent bank.

According to a request for proposal, swap ratios have been sought for the listed subsidiaries – State Bank of Bikaner & Jaipur (SBBJ), State Bank of Mysore (SBM) and State Bank of Travancore (SBT) along with BMB.

The two unlisted subsidiaries are State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH). SBI had merged two subsidiaries – State Bank of Saurashtra in 2008 and State Bank of Indore in 2010 – with itself.

“The scope of work for the valuer valuing SBI would entail the valuer to value SBI and also work with the independent valuers appointed by each of the target banks separately to arrive at a valuation for SBI and also gain comfort on the valuation of each of the target banks prepared by their respective valuers to issue/sign a joint swap ratio report,” the document said.

Consequently, the valuer will have to submit four separate swap ratio reports – one for each of the target banks. That apart, SBI Caps has also sought proposals from merchant banking firms to provide fairness opinion for the proposed acquisition. The firm would evaluate the swap ratios and provide a fairness opinion for the acquisition of each of the target banks.

In May, Jefferies wrote in a report that SBI’s associate banks aggregate to around 26% of its standalone loan, and in terms of total assets, its about 20% of the consolidated assets.

“However, over time their contribution to the consolidated profits has come off to around 10% in FY16e versus more than 30% in FY11,” it said, adding that the slippages reported by the subsidiaries as compared to SBI’s slippage were significantly higher in the last two years.

Last month, the Cabinet had approved the merger of SBI subsidiaries with the parent bank.

The size of the balance sheet of the consolidated bank will be around R37 lakh crore after the merger from R28 lakh crore at present.

State Bank of India