Buffet looks to buy 10% in Kotak Bank for $6 bn

Mumbai: Speculation was rife on Friday about a possible multi-billion stake purchase by ace investor Warren Buffet’s Berkshire Hathaway in the domestic lender Kotak Mahindra Bank, leading to a 14 per cent rise in its shares. If fructified, the deal, pegged at $4-6 billion for a 10 per cent stake, will help promoter Uday Kotak to comply with the regulatory requirements to get down his holdings to under 20 per cent by the end of 2018.

The RBI had earlier asked promoters-the Kotak family–to bring down their stake to 20 per cent by December end and 15 per cent by March 2020. Berkshire Hathaway may look at buying promoter stake or via a preferential allotment, said the sources.
Media reports said Buffet may pump in as much as $406 billion for a stake in the fourth largest bank.

The private sector lender has put out a statement to the exchanges following the media report, saying it doesn’t have anything to report on the matter to the exchanges. “Kotak Mahindra Bank is unaware of any plans by Berkshire Hathaway buying stake in the bank,” it said.

An email sent to the Omaha-headquartered Berkshire Hathaway seeking comments on the speculation was not immediately answered. However, market sources said Kotak and Buffet, both finance industry veterans, may not require any institutional help to talk to each other.

Berkshire Hathaway will take a 10 per cent holding in the bank in a $4-6 billion deal. Pointing out to the December deadline, a source said whatever action were to happen will happen in the next fortnight or so. This will be second major deal for the Mumbai-headquartered lender after buying out smaller rival ING Vysya in an all-cash transaction in 2015.

Industry sources said the current statutes allow for such an investment by a foreign entity into a domestic bank. According to a 2016 RBI notification, a regulated, well diversified and listed/ supranational institution/ public sector undertaking/government can take up to 40 per cent holding in a private sector bank.

There are also precedents where single ownership caps have been relaxed or are much higher like mortgage major HDFC’s 23 percent holding in HDFC Bank, they said. Industry sources also pointed out to the Canada-based NRI investor Prem Watsa’s Fairfax Holdings recently picking up 51 per cent stake in the Kerala-based Catholic Syrian Bank, saying exceptional cases are also permitted.

Kotak Bank, began in 2002-03, had earlier this year tried to get down the promoter holding through a complex instrument resembling a preference share issue, which was rejected by the RBI. The bank’s last communication on this said, “we continue to believe that we’ve met the requirement to the promoter holding down to the regulatory levels and will engage with the RBI in this behalf.”

It can be noted that the RBI has of late been taking a very strict view on promoter holdings and would be unlikely to yield to any requests for relaxations. The RBI acted sternly against newest private sector lender Bandhan Bank for not getting down the promoter holding earlier this year. Reacting to the news, Kotak Bank shares rallied as much as 14 per cent to Rs 1,345.35 intraday and ended traded with a smart gain of nearly 9 percent on the BSE, whose benchmark jumped 1.02 per cent after a massive rout on Thursday.

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