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Buffets Berkshire may snap up 10% in Kotak Bank in a $4-6 bn deal, stock soars 9%

PTI Mumbai
Updated: 07-12-2018 23:12 IST

Speculation was rife Friday about a possible multi-billion stake purchase by ace investor Warren Buffets Berkshire Hathaway in the domestic lender Kotak Mahindra Bank, leading to a massive rally in its shares to the tune of 14 per cent.

If fructified, the deal, pegged at USD 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 Reserve Bank had earlier asked promoters-the Kotak family--to bring down their stake to 20 percent by December end and 15 per cent by March 2020.

Media reports said Buffet may pump in as much as USD 4-6 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 doesnt 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.

According to reports, Berkshire Hathaway will take a 10 per cent holding in the bank in a USD 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 city- 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 percent holding in a private sector bank.

There are also precedents where single ownership caps have been relaxed or are much higher like mortgage major HDFCs 23 per cent holding in HDFC Bank, they said.

Industry sources also pointed out to the Canada-based NRI investor Prem Watsas 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 banks last communication on this said, "we continue to believe that weve 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 intra-day and ended traded with a smart gain of nearly 9 per cent on the BSE, whose benchmark jumped 1.02 per cent after a massive rout Friday.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)