Clermont Group likely to join Clix Capital in Lakshmi Vilas Bank deal

PE firm may infuse $150-200 million for up to 20% stake in bank before merger

As negotiations progress between capital-starved Lakshmi Vilas Bank (LVB) and AION Capital-backed Clix Capital over a merger, sources in the know say Singapore-based private equity player Clermont Group has also joined the talks to pick up a sizeable stake in the bank. 

With an investment of $150-200 million (Rs 1,100-1,500 crore), Clermont is eyeing a 15-20 per cent stake in LVB, say sources. “The capital infusion is likely to happen ahead of the merger with Clix and this should help the bank stay afloat till the merger is approved by the Reserve Bank of India (RBI) and concludes thereafter, a process that could take nine-12 months,” said a person working on the deal. 

This round of capital infusion, if approved, could help LVB increase its capital adequacy from 3.45 per cent as on December 31, 2019, to over 7-8 per cent. However, this might not help the bank exit the prompt corrective action (PCA) imposed by RBI in September 2019. The merger will be critical to LVB's plan to exit the PCA framework, a source said. 

Queries sent to LVB, Clix Capital and Clermont remained unanswered at the time of going to press.

It is learnt that Clermont communicated its interest to buy a stake in LVB much before it received a non-binding letter of interest from Clix Capital. “Valuations will be the deciding factor,” said another banker aware of the merger talks. 

Since Clermont’s investments will come before Clix’s, the latter is insisting that Clix infuse capital at a premium to Clermont’s pricing. Sources say Clix is wary of bringing in capital at a steep premium to Clermont’s value. LVB stock traded at Rs 21.1 apiece on Thursday. Clermont’s infusion might be valued at Rs 25-28 a share. “A premium of up to 20 per cent to Clermont’s pricing is acceptable to Clix, while anything above that is unlikely to find favour,” said the banker quoted earlier. 

LVB received a non-binding letter of interest from Clix Capital on June 16. The due-diligence process is currently underway. EY is advising Clix Capital on the merger, while LVB is being represented by Deloitte. Upon successful completion of due diligence and talks with Clermont progressing in the right direction, sources say LVB will send an application for merger with Clix Capital to RBI by mid-August. Capital infusion by Clermont group is likely to materialise sooner, though it would also require regulatory nod.