Kiran

The Reserve Bank of India appears to have finally relented on the issue of approval of BNP Paribas' open offer for Geojit Financial Services. The French bank's open offer for increasing its stake in the Indian financial services firm was stuck after the banking regulator refused to clear it since the seller also has a commodities business. This business is now being closed down.

BNP may now have to rework the open offer price for Geojit after the French bank made additional investments in the brokerage company although some investment bankers dispute this.

The French bank had in early 2007 acquired a 27.18% stake in Geojit. After the filing of the open offer at Rs 27.50, SEBI had referred the issue to RBI. However, the central bank was of the view that the provisions of the Banking Regulation Act do not allow a bank to hold any stake in a commodities brokerage business. Banking industry sources said RBI has now given the go-ahead for the open offer. An official communiqué is likely to be issued in the next couple of days.

BNP had a couple of months ago decided to pay Geojit Commodities, the commodity brokerage business of Geojit, a compensation of Rs 40 crore for discontinuing the business. It also agreed to invest Rs 60 crore of fresh equity into Geojit Technologies, a wholly-owned subsidiary of the Geojit group.

According to a source close to the development, because of the payment of Rs 100 crore to Geojit, minority shareholders in the company may have to be compensated. BNP has made investments of Rs 206.96 crore earlier. However, bankers refuted this saying, the money was paid as compensation to the company.

When contacted BNP officials declined to comment on the issue. The open offer is unlikely to have an impact as the scrip is currently trading much higher. Geojit scrip on Thursday was marginally down and closed at Rs 40.65 on BSE.

BNP Paribas had initially picked up a 27.18% stake in Geojit Financial Services for Rs 147.68 crore when the Indian brokerage issued 5.68 crore shares at Rs 26 in March this year. The brokerage board also issued 2.28 crore warrants. Each warrant is convertible into one equity share, at a price of Rs 26 per warrant. The French bank will have to make a payment of Rs 59.28 crore for this. Each of the warrants is convertible into one equity share within a period of 18 months from the date of their allotment. After conversion, the stake of BNP Paribas in the company will be 34.35%.

In case the open offer of 20% is fully accepted, no subscription warrant will be converted. BNP Paribas will hold 49.36%. In case there is no response to the open offer, all the subscription warrants will be converted and BNP will hold 34.35%, post the preferential issue.