Smaller shareholders get windfall from mandatory offer for UBC

Smaller shareholders of Union Bank of Colombo PLC (UBC) got a windfall from the mandatory offer of Rs. 25 per share offered for a small fraction of their holding finding that up to 10,000 of their shares would be taken at the 25-rupee price.

Those who had more had the benefit of 16.01% of the excess also accepted.

This was possible as many of the big shareholders, including Mr. Alexis Indrajit Lovell, Chairman of UBC owning 6.51 percent of the bank, had not accepted the offer.

Lovell had entered into an agreement with Culture Financial Holdings Ltd. (CFHL), now controlling UBC, that he will not divest his UBC shares for an agreed (but undisclosed) period of time, thereby effectively undertaking not to accept the mandatory offer to the minority shareholders of the bank, a circular to UBC shareholders revealed.

But many other bigger shareholders too had not accepted the offer making it possible for the offeror to take much more than the 6.25% of the individual shareholdings for which the offer was made.

According to a Stock Exchange filing, 271 shareholders had offered 8.58 million shares on the 6.25% percent basis of the offer while 245 had tendered 78.1 million shares in excess of this percentage hoping that get a part of the additional slack available from non-acceptance.

In the event they got much more than they had anticipated thanks to some of the bigger shareholders, with no agreement like Lovell, opting not to accept.

``Unfortunately some shareholders who would have gladly surrendered 10,000 shares at the Rs. 25 price didn’t submit acceptances thinking that just a small fraction of their holdings would be taken,’’ a broker said.

CFHL is a 100% subsidiary of TPG Asia VI SF Pte. Ltd. (Singapore) recently took control of UBC by acquiring 742.16 million shares through a private placement of shares at a price of Rs. 15.30 per share.

PricewaterhouseCoopers (Pvt) Limited had expressed the view that the offer of Rs.25 per UBC Share by CFHL is fair and reasonable to ordinary shareholders of the bank.

CFHL, currently owning 68% of UBC, has offered to purchase up to 2% of the enlarged share capital amounting to 6.25% of shares held by every shareholder of UBC excluding the offeror.

Under conditions of approval given by the Central Bank, it can only acquire 70% of UBC and therefore only acquire 2% of the issued shares of 21.8% of the shares not already owned by them.

Pricewaterhouse has noted that between September 1, 2013 and September 29, 2014 UBC traded at a low of Rs.15.20 and a high of Rs.23.80. They have noted that the highest traded price was still lower than the Rs.25 offer price.

"The weighted average price for the 6-month period up to 29 September 2014 was Rs.21.61 and the Offer Price of Rs.25 per share of UBC represent a premium of 15.7% to the weighted average price per share of UBC," Pricewaterhouse has noted.

Based on the net asset value, the UBC share was worth Rs.13.30 and the Rs.25 offer price represented a premium of 87.9% to the net asset value, they said.

"Based on the market based Price-to-Book multiple approach value for UBC of Rs.15.09 per share, the Offer Price of Rs.25 per share of UBC represents a premium of 65.7%," they have noted.

UBC has two subsidiaries, UB Finance Co. Ltd. in which UBC holds 66.17% and National Asset Management Ltd. in which UBC holds 51%.

As at August 15, 2014, there were six entities and individuals holdings more than 5% of UBC. They are Vista Knowledge Pte Ltd (18.52%), Sampath Bank PLC (7.534%), Associated Electrical Corporation Ltd (7.47%), Select Gain Limited (6.70%), Mr. Alexis Indrajit Lovell (6.51%) and Mr. C.P.A. Wijeyesekera (5.30%).

CFHL has said that its strategic and operational objective is to grow UBC to be among the top five listed licensed commercial banks in terms of assets in line with the Central Bank’s policy initiative to create a well capitalized and larger banking sector to support long-term sustainable growth.

The offer says these investments will strengthen UBC’s capitalization ensuring the bank will satisfy the increased capital requirement of the Central Bank and contribute to the overall stability of the country’s financial sector.

They also plan to introduce an Employees Stock Option Plan (ESOP) conferring relevant employees with the right to subscribe up to 5% of the issued share capital of UBC.

"UBC believes that the combination of capital, operational and strategic measures will lead to significant value generation in the bank over the course of the coming years and the bank will be adequately positioned for growth in the medium term.

"In the short term the investment would enable the bank to reduce the cost of funds and strengthen the financial stability of its subsidiary operations.

"Increased economic activity and uptake of credit demand is expected to drive medium term growth and provide the opportunity to leverage the bank’s strengthened balance sheet following the capital injection by the Offeror," the document circularized to shareholders said

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