Chennai: The share transfer saga of Tuticorin-based Tamilnad Mercantile Bank (TMB) continues to have its twists and turns. The latest information suggests that the Nadars are now banking on a Tamil Iyengar, Ramesh Vangal led foreign investor group to regain and retain the bank control for the betterment of the community.

Vangal is the promoter of the Bangalore-based Katra group, and hails from Vangal village near Karur in Tamil Nadu.

Last year, a group of foreign investors led by Vangal bought out the 24.93 per cent holding of the Sterling group, promoted by C Sivasankaran, for a price Rs186 crore.

The investors are Vangal/Katra Holdings (10,364 shares, 3.64 per cent), Rajat Gupta (14,080, 4.95 per cent) Ravi S Trehan (2845, 1 per cent), Kamehameha Mauritius (2025, 0.71 per cent), Cuna Group Mauritius 2025, 0.71 per cent), FI InvestmentsMauritius (5399, 1.90 per cent), Swiss Re Investors (10124, 3.56 per cent), Gokul Patnaik (10589, 3.72 per cent) and Vector Program (13455, 4.73 per cent).

According to Nadar community leaders, another 8.62 per cent of TMB shares were transferred in the name of B Ramachandra Adityan, ex-director and his family members.

The deal was facilitated by Adityan and MGM Maran, chairman, TMB, both Nadars.

The stake sale was approved by Reserve Bank of India (RBI) and TMB effected the share transfer, thereby signalling the exit of the Sterling group from the bank.

The Sterling group had acquired 67 per cent stake in TMB from the Essar group in 1996.

Subsequently the Nadars mobilised around Rs81 crore from the community, and acquired 33.45 per cent from the Sterling group.

The latest deal involving Katra group and other foreign investors is for the acquisition of the balance 33.55 per cent.

Interestingly Sivasankaran earned around Rs266 crore in TMB deal. His cost of acquisition is said to be Rs65 crore. Going by Sivasankaran's past deals, the netting of around Rs201 crore profit in the TMB share investment must have been below his expectations.

Meanwhile, the Nadar community which is fighting Adityan filed a case against the share transfer in favour of foreign and Indian investors and the Madras High Court restrained the transfer.

According to the community leaders, the RBI got bothered about the continuing share sale saga at TMB and started voicing in favour of merging TMB with some other bank. Finding the matter getting into a legal tangle, Vangal and other investors decided to join hands with the Nadar community and entered into an agreement with the Forum.

The community is now planning to unseat TMB's entire board and have its nominees there.

Says Tamil Arasu, a former director and the grandson of one of the TMB promoters, "We will field our nominees for all the ten board positions in the ensuring annual general meeting (AGM). The community now controls nearly 75 per cent of the bank."

As to the reasons for turning against the incumbent board, he says, "The board has failed to take care of the shareholder's interest. The bank's board didn't declare decent dividends in the recent years despite earning handsome profits and huge reserves."
As per the agreement inked between the foreign investors and the Nadar community bodies, majority of the board membership will be nominated by the Sangam and Forum while the investors can nominate the balance.

"Once our nominees are on TMB board, the bank would expand the capital base with 1:150 bonus issue, a rights issue and followed by an initial public offering (IPO)," says Arasu.

According to him the foreign investors cannot sell their holdings in the bank to any other person as the Sangam has the first right of refusal as per the agreement.

"As per the agreement the foreign investors cannot increase their stakes beyond 24.93 per cent."

According to the community members, here is no way in the near future that the bank would get out of the community hand as there are few Nadars holding sizeable stakes and can jointly thwart any more takeover attempts.

However, the community now agrees that the bank will have to be run by professionals and the board to should have some outside professionals. The Nadars also praise the TMB employees for steering the bank ahead with a single focus despite the long pending share transfer issue.

With foreign investors buying their stakes paying a whopping Rs.24,182 per share, the Nadars have realized that TMB is a gold mine and the community members are on the gold hunt. However, shares are not available for purchase as the shareholders are tightly holding on to their scrip.

TMB posted a net profit of Rs105.78 crore for the FY07. The bank has a net owned fund of Rs759.15 crore, and the book value per share is around Rs23,000. The earnings per share works to Rs3719 and the capital adequacy ratio is an envious 16.77 per cent.

Asked about their plans for the bank, community leaders say they would like grow TMB's branch network to 500, and the total business to Rs50,000 crore by 2013.

According to Arasu, the Sangam and the Forum would see that the 8.62 per cent stake in registered in the name of few individuals will be transferred to those who have paid money earlier to retrieve the shares from Sterling group.

Now the action will shift to the election of the bank board.