Sebi order will gift Tayals a bonanza from ICICI shares

While the Tayals, former promoters of Bank of Rajasthan, might be rejoicing after Sebi lifted a trading ban on 100 group entities, ICICI Bank shareholders may have reasons to run for shelter. Bank of Rajasthan was merged with ICICI Bank in 2010.

The key import of Sebi’s decision is that the Tayals will now be allowed to sell shares of ICICI Bank which they had obtained through a share swap that came with the merger.

Bank of Rajasthan had an equity capital of Rs 161.35 crore, 55 percent of which was held by the promoters (including those held in violation of a Reserve Bank of India order). This works out to 8.874 crore shares of Bank of Rajasthan. The merger ratio was 25 shares of ICICI Bank for every 118 shares of Bank of Rajasthan. Thus, the ICICI Bank shares held by the Tayals works out to 1.88 crore shares.

At the current price of ICICI Bank of Rs 855 (down 2.5 percent on Wednesday), this works out to Rs 1,607.4 crore.

The Tayals have been asking Sebi to lift the ban on group entities that have been holding these shares. Ending the ban means they can encash a bonanza - but if they sell too much, too soon, the shares may dip for a while.

The Tayals were banned from accessing or dealing in the securities market for cornering shares of their company from the open market. As per a directive from the Reserve Bank, which found gross violation of banking norms in Bank of Rajasthan, the promoters were expected to bring down their shareholding in the company from 44.18 percent to 28.61 percent. However, using a web of group companies, the promoters actually increased their stake to 55.01 percent just before the merger with ICICI Bank was officially announced.

The RBI had asked ICICI Bank to acquire Bank of Rajasthan as it found the Tayals’ style of management unhealthy for the bank.

The merger was announced when the share price of Bank of Rajasthan was at Rs 82. But the acquisition price announced was Rs 188.

The promoters enjoyed a windfall gain in what appears to be a clear case of front-running. However, Sebi has found no fault in this and has cleared the companies to now sell these ICICI Bank shares held by them.

ICICI Bank stock will now face an overhang of 1.88 crore shares (around 1.6 percent of its equity capital). Till these are absorbed, the stock is unlikely to go anywhere in a hurry.