Centurion Takes Over 20th Century Business

20th Century Finance Company Ltd (TCFC), a listed non-banking finance company, is transferring its 'operating' business to its group firm, Centurion Bank.

The NBFC, which had so far enjoyed a triple A rating, was immediately put under watch by Crisil yesterday. Crisil placed the company's fixed deposit programme on rating watch with developing implications. TCFC's rating by Crisil stands at FAA+ indicating high safety.

According to company sources, the NBFC is heading for a merger with the bank, and its strategic investment business will be transferred to a separate company. The swap ratio of this listed company will be decided soon, they said. Explaining the rational of merger an analyst said, "Ideally, an NBFC is active in fee based or fund activity or both. TCFC is not involved in fee based activity and it is now considering transfer of fund based activity. Thus it clearly shows signs of a merger between the two."

 

The statement issued by Centurion Bank yesterday said: "The exact mechanism of acquisition, the assets and liabilities to be acquired by the bank, the structure, and the valuation, are matters which will be finalised only through independent valuers of repute and will be subject to receiving all the necessary regulatory and statutory approvals including the approval of the shareholders and creditors."

The company officials said, "The boards of both the companies today cleared the proposal of transferring the assets and liabilities of the TCFC and are now considering the legal valuation for this purpose." The proposal envisages segregating the strategic investment business (fee based) of TCFC from the operating business and the bank acquiring the operating business (fund based), said the official statement. This move is in line with the guideline issued by Securities and Exchange Board of India which did not permit non banking finance companies carry out fee based and fund based activity under the same umbrella. After considering the legal valuation for this proposal, TCFC will have to take clearance from RBI, shareholders, creditors and high court.

They expect that the process of transferring "operating business" is expected to be completed by mid 1999. "Both the companies have received a positive response from the Reserve Bank of India and have thus decided to go ahead with the proposal," said company officials.

Commenting to the proposal, D N Ghosh, chairman of Centurion Bank said, "We are in favour of Narasimhan Committee recommendation of consolidation for stability and that is why both the companies are looking at synergising their operations while at the same time, opening new vistas of opportunity for the bank." Davendra Ahuja, chairman of Twentieth Century group, said: "The benefits of this unique consolidation would be manifold. It would significantly strengthen the business mix of the bank, reduce costs of the funds, achieve significant economies of scale, eliminate duplication and in a single stroke, establish an all India presence for the bank. The elegance of the plan lies in the fact of increased shareholder benefit and the sheer simplicity of the process."