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Billionaire Banker Uday Kotak Enters Top League After Scooping Up ING Vysya Bank For $2.4 billion

This article is more than 9 years old.

It was no secret that Uday Kotak, India’s wealthiest self-made banker (net worth: $6.8 billion), had been scouting around for an acquisition. But few could have guessed that Kotak, one of the country’s shrewdest dealmakers, was so close to his target. After trading hours Thursday, his eponymous Kotak Mahindra Bank disclosed that it had sealed a $2.4 billion, all-stock deal for rival ING Vysya Bank, partly owned by Dutch financial services group ING.

The merger of ING Vysya with Kotak Mahindra propels the latter into the top ranks of India’s private lenders at number 4. The combined entity will have assets of $32 billion and a network of more than 1,200 branches across the country. The Bangalore-based ING Vysya with 573 branches of its own, helps Kotak Mahindra expand its footprint in short order, notably in south India. (Kotak's existing stronghold is the west and north.) Setting up new branches is no easy feat in India and an equivalent number would have taken the bank well over two years to build out. In terms of value, it is the country’s second largest bank merger, eclipsed only by rival HDFC Bank ’s $2.8 billion acquisition of Centurion Bank of Punjab in 2008.

Kotak had been circling around ING Vysya for over a year, along with other prospective buyers such as ICICI Bank and IndusInd Bank, which is controlled by the billionaire Hinduja brothers. It's believed that the deal was clinched in Kotak's favour due to his bank's cordial relationship with ING.

Bankers say that the 16% premium that Kotak Mahindra has agreed to pay for ING Vysya isn’t over the top in a rising market. “ The economy is turning which makes this an opportune time for Kotak to scale up, “ said Vimal Bhandari, managing director and chief executive of IndoStar Capital Finance and Kotak’s former college buddy. (Disclosure: I was also Kotak's college classmate.)

The merger, which awaits regulatory approvals, will give ING, which owns about 43% in ING Vysya, a 6.5% stake in Kotak Mahindra. (ING has agreed to a one year lock-in period.) Kotak’s stake in the bank will get diluted from 40% to 34%, which fits in nicely with the scheme of things: he is required by the Reserve Bank of India to bring down his holding in the bank to 30% by December 2016 and to 20% by 2018.

Thus far Kotak had been selling down to meet this target; in May, he sold 3.2% to the Canada Pension Plan Investment Board for $356 million, a sum that only added to the considerable cash pile he already holds. In August, he sold a tiny stake again.

Kotak, 54, who hails from a family of cotton traders, started his entrepreneurial journey with a small financial services firm in 1986. Armed with an MBA but no previous track record, he managed to impress Anand Mahindra of the wealthy auto clan who invested in Kotak’s new venture and agreed to lend his name (Mahindra still retains a small minority stake.). Kotak went on to partner Goldman Sachs but terminated the joint venture when Goldman sought control. In 2003 came a big turning point when Kotak snatched a banking licence.

Being conservative has paid off for Kotak whose bank has survived cycles such as the 2008 financial meltdown and more recently a sluggish domestic economy, which has begun reviving after the installation of a new federal government in May. While Kotak has sought to expand overseas in a limited way, he remains a big believer in the Indian economy and has always banked on growing locally.

That’s turned out to be a good bet. Kotak Mahindra’s shares are up 66% this year, outperforming the stock market’s 34% rise. The ING Vysya deal has made Kotak richer by $750 million in just one day.