HDFC Bank to buy Centurion for $2.4 bn

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Mumbai, February 25:: HDFC Bank, India's third-biggest by market value, offered $2.4 billion in shares for smaller Centurion Bank of Punjab in an attempt to bulk up ahead of the bank sector being opened to foreign competitors.

Markets, however, were disappointed with HDFC Bank's agreed offer of one of its shares for every 29 Centurion shares, making it the biggest takeover in India's bank sector. Centurion shares dropped more than 14 percent on Monday after the deal valued it below its close of last week.

"We believe this acquisition is driven by longer-term strategy intent, rather than near-term economics, or a particularly opportune asset or pricing environment," Citigroup analysts said in a report.

Analysts said HDFC Bank was looking to cement its place as India's second-largest private bank behind ICICI Bank and fend off a challenge from Axis Bank, which Citigroup said had grown significantly faster than HDFC Bank, "and done so profitably."

On Friday, HDFC Bank's shares closed at 1,474.95 rupees, or 26.15 times Centurion's 56.40 rupee close. HDFC Bank's shares fell as much as 5.3 percent on Monday and Centurion Bank shares fell as much as 14.6 percent as the prices adjusted to the deal.

The takeover, which requires regulatory and shareholder approval, could be the first of several ahead of next year's review of controls on foreign banks. That review could see foreign lenders such as Citigroup, Standard Chartered and HSBC buying local lenders.

"Most Indian banks are not (of a) great size. To tackle foreign banks, there could be more mergers. Most Indian banks are regionally focused," said an analyst at Religare Securities, who asked not to be named.

India's biggest bank, government-run State Bank of India, has a market value of $33.5 billion -- just a fraction of Industrial and Commercial Bank of China's $282 billion.

HDFC Bank has a market capitalisation of $13.1 billion, and ICICI is valued at $30.7 billion.

"I think this is just a merger for the sake of a merger. I don't see any immediate value addition to HDFC Bank because of this," said Sejal Doshi, CEO at Finquest Securities.

Centurion, valued at $2.65 billion, had 394 branches across 180 cities and towns, with approval for 20 more, and total assets of 254 billion rupees ($6.35 billion) at end-2007. It is the largest private sector bank in northern Punjab state, where it has 78 branches, its Web site showed.