HDFC Bank agrees to buy Centurion Bank

HDFC Bank, India's third-biggest lender by market capitalisation, agreed on Saturday to buy Centurion Bank of Punjab in an all-share deal in the nation's biggest financial sector buyout.

The boards of the two banks will meet on Feb 25 to consider the share swap ratio and again on Feb 28 to finalise the details of the merger, a joint statement from the lenders said. The two first announced plans for the merger late on Friday.

"The two Boards have resolved to pursue the merger subject to satisfactory due diligence, a fair share-swap ratio and all the requisite statutory, regulatory and corporate approvals," the statement said. It did not give a value for the deal.

According to Times News Network the deal may value Centurion's shares at 57 rupees each, or roughly the price at which they closed on Thursday after jumping 14 percent on the day as speculation of a deal intensified.

Ernst & Young and Dalal & Shah have been appointed to determine the share swap ratio, HDFC Bank said in a statement to the stock exchange. The merger will create a bank with 1,148 branches, surpassing second largest lender ICICI Bank's 955 branches.

Centurion had 394 branches and HDFC Bank 754 branches as on Dec. 31 2007, the statement said. However, the merged entity's total advances of about 870 billion rupees ($21.7 billion) are far lower than ICICI's 2.2 trillion rupees. The merger will allow HDFC Bank to extend its reach in the country before a central bank review next year that may allow foreign banks such as Citigroup and Standard Chartered to buy Indian lenders.

Indian banks, led by State Bank of India and ICICI, the top two by market value, are raising funds to expand ahead of the review and to meet the demands from an economy that has grown at an average of 8.6 percent over the last four years.

State Bank is raising $4.2 billion in a rights share issue, HDFC Bank plans to sell bonds worth up to $1 billion and ICICI sold $5 billion of shares in June, eyeing rapid growth in the fragmented Indian banking sector. HDFC Bank and Centurion, which got banking licenses in the mid-1990s, are among the few to have acquired local rivals. HDFC Bank bought Times Bank from media publisher Bennett Coleman & Co in 2000.

While Centurion, which was rescued by buyout firm Sabre Capital in 2003 after major losses, has bought Bank of Punjab and Lord Krishna Bank. Bank Muscat owns 14.02 percent and Sabre Capital 3.74 percent of Centurion as on Dec. 31, stock exchange data showed.

Centurion Bank shares, which ended one percent down on Friday valuing the bank at 105 billion rupees, have risen 13 percent since Feb. 20. HDFC Bank shares have lost 4 percent in the same period.