Dhanlaxmi Bank has raised Rs 290 crore ($64.4 million) by selling 19.6 per cent stake through a preferential allotment to a group of private equity investors and Customers Bancorp Inc., a US banking services firm which is backed and led by Jay Sidhu, a US-based banker of Indian origin, who led the rise of Sovereign Bancorp into one of the largest US regional banks before being ousted from the organisation.
Besides Customers Bancorp Inc., Mount Kellet Capital (a private equity firm run by former Goldman Sachs partner Mark McGoldrick), Wolfensohn Capital Partners (equity fund promoted by former World Bank chief James Wolfensohn) and Multiples (private equity firm started by former ICICI Ventures’ chief Renuka Ramnath) invested in the Thrissur-based private bank.
All the four investors picked 4.9 per cent stake at a price of Rs 140 per share, 16.6 per cent premium to the closing price of Dhanlaxmi Bank on Wednesday. Dhanlaxmi Bank scrip rose 3.7 per cent and was trading at Rs 124.55 at BSE in early morning hours, valuing the firm at Rs 1,070 crore ($ $235 million).
The fundraising, which is the first tier of a larger money-raising plan, will be used to boost capital adequacy requirement of the emerging bank. Together with the current round and the future fundraising, the bank will be able to meet the RBI norms of a diversified equity structure with no single individual holding more than 5 per cent. At present, P Raja Mohan Rao owns over 7 per cent stake which will come down to 5.5 per cent after the four investors are allotted fresh shares.
Comeback For Jay Sidhu
While Multiples invested through two entities, Multiples Private Equity Fund and Multiples Private Equity FII I, a far more interesting move is by Sidhu’s Customers Bancorp Inc. Customers Bancorp Inc. is in the process of becoming a banking holding company which will run Customers Bank.
Sidhu, who had been leading Sidhu Advisors, a private equity and financial services consulting company, had acquired a controlling stake in New Century Bank (a Pennsylvania-based community bank) two years ago, by raising $13.6 million from friends and family for the transaction. See our earlier report .
This deal marked a comeback of sorts for Sidhu in the banking industry after he was ousted from Sovereign Bancorp in 2006 after a major power struggle.
Since Sidhu’s entry, New Century Bank has been renamed as Customers Bank. With assets of over $1.2 billion, Customers Bank provides a full range of banking services to small and medium-sized businesses, professionals, individuals and families in Pennsylvania, New Jersey and New York areas.
Sidhu, who had earlier built the assets of Sovereign Bancorp from just $0.5 billion in 1986 to over $90 billion just before he exited two decades later, has been actively leading M&As for Customers Bank.
Last July, it had entered into an agreement to acquire substantially all the assets and assume all the non-brokered deposits and all other liabilities of the USA Bank. Just weeks later in September, Customers Bank entered into a similar deal to acquire assets and liabilities of ISN Bank. It is currently in the process of merging with Berkshire Bancorp Inc. Berkshire Bancorp Inc. is a Pennsylvania bank holding company, and its primary activity consists of owning and supervising its subsidiary Berkshire Bank which has five branch locations in Berks County, Pennsylvania, and is a full-service commercial bank.
With the right kind of top management out there (Dhanlaxmi Bank is led by Amitabh Chaturvedi, a former ICICI Bank hotshot), the question is – will Dhanlaxmi Bank adopt a similar strategy to grow in India?