Sebi looking into share price spike ahead of Kotak-ING deal

Inquiry preliminary, based on system-generated alert

The Securities and Exchange Board of India (Sebi) is looking into unusual trading activity in the shares of Kotak Mahindra Bank and ING Vysya Bank ahead of a merger between the two.

While Kotak’s stock price rose about twice as much as the banking index in the month before the deal was announced, ING Vysya’s gains were more than three times the sectoral index. During the same period, Kotak’s trading volumes rose about 50 per cent, while those of ING jumped fivefold.

The surge in trading volumes and share prices ahead of the announcement of the deal has resulted in an alert being generated at Sebi. According to a person familiar with the matter, the regulator is looking into the issue. As of now, the investigation is preliminary, based on the alert generated by the regulator’s automated surveillance system. All angles, including any leakage of price sensitive information, would be looked into, the person said.

On November 20, Kotak Mahindra Bank had said it would acquire ING Vysya Bank. The deal makes Kotak the fourth-largest private bank in terms of overall business, behind ICICI Bank, HDFC Bank and Axis Bank.

The deal also gives Kotak presence in the southern markets, where most of ING Vysya’s branches are located (most of Kotak’s branches are in western and northern India).

Analysts had cheered the deal, citing the synergies and reasonable valuations of the transaction.

Even before the deal was announced, the shares of both banks had recorded gains. In the month preceding the announcement of the deal, ING Vysya rose from Rs 630.65 to Rs 814.2, up 29.1 per cent, while Kotak rose from Rs 1,003.95 to Rs 1,157.05, a rise of 15.24 per cent.

By comparison, the banking index rose 8.83 per cent.

A request for comment to an ING Vysya spokesperson did not immediately receive a reply.

“At all times, we practice corporate governance standards in letter and spirit. We have not received any communication from Sebi in this matter,” said a spokesperson for Kotak Mahindra Group.

In terms of volumes, investors in ING Vysya Bank traded shares worth an average of Rs 9 during January-October 20 this year. This trading volume jumped more than fivefold to Rs 52.8 crore in the month immediately preceding the announcement of the deal.

In the case of Kotak Mahindra Bank, the volume jumped from an average of Rs 85.95 crore for January-October 20 to Rs 126.17 crore, up 46.7 per cent.

An email sent to the regulator did not receive a reply.
Disclosure: Kotak Mahindra and associates are significant shareholders in Business Standard Ltd