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Nadars-Siva talks fall short of pact over Tamilnad Mercantile Bank

A Ganesh Nadar in Madras

The battle for control of Tamilnad Mercantile Bank has entered a fresh round. Representatives of the Nadars and non-resident Indian businessman Sivasankaran have had a couple of meetings in the last fortnight. The talks, however, did not lead to any agreement. Sources termed the discussions as "progressive".

After demanding Rs 2.56 billion for the return of the TMB shares to the Nadars, Sivasankaran has scaled down his figure to Rs 2 billion. The Nadars on their part are still sticking to their original offer of Rs 1 billion for the shares held by the NRI.

Reliable sources had earlier said that Sivasankaran might sell a part of the shares to financial institutions. The chairman of the Nadars' retrieval committee, Ramachandra Aditan, said that Sivasankaran had advised them to sell a part of the shares to the FIs so that the financial burden on the Nadars decreases.

Last week, the Nadars arranged a rally in Nagercoil to explain to the people at large the happenings inside Tamilnad Mercantile Bank.

A former director of the TMB board said, "The deal will close at Rs 1.8 billion. Earlier, the Nadars had mobilised funds promising the shareholders one share for Rs 5,500. The figure was arrived at on the basis of paying back Rs 1 billion. Now that the amount has been increased to Rs 1.8 billion, the share price will go up."

It is expected that the investors might demand their money back when asked to pay 80 per cent more. A member of the retrieval committee from Coimbatore, R Chandrasekhar, said, ''Once we have the shares in our hand, we can issue rights shares and bonus shares -- we are seeking legal advice on that. In six months, one share will become five and in a year it will become ten.''

He feels that people will willingly pay more when they know that they will get ten more shares per share.

Issuing bonus shares or rights should not be difficult because TMB is stated to have capital reserves between Rs 1.6 billion and Rs 1.8 billion. The initial share capital was only Rs 2.8 million.

Sivasankaran has agreed to return the shares on payment of an advance. For the balance amount, the Nadars will have to pay 12 to 15 per cent interest.

The Nadars feel that mobilisation of funds or sale to the FIs should not be a problem because normally bank shares earn 1.7 times their net value. TMB's earning per share or EPS is reportedly seven times its net value.

One large investor who had put in Rs 10 million in the retrieval fund has pulled out. He said, ''They are paying us seven per cent interest for the same amount if I lend to the same bank. But if I were to borrow, I have to pay 16 to 17 per cent interest." He said he will reinvest when the deal is closed.

The retrieval fund -- more that Rs 500 million -- has been earning interest for more than a year. This is being used for mobilisation expenditure. It will not help in the pay back.

There are a lot of legal issues involved. Both sides have agreed to a ten-day gap before they meet again for talks. They will consult their respective legal teams.

There are 17 cases pending in the courts concerning the bank shares. The Sivakasi and Virudhunagar Nadar families who had originally kicked off this controversy have come out with an interesting argument.

According to them, when they had sold the shares to Essar, they had explicitly told them that "if the RBI does not agree to transfer the shares to Essar, the same must be returned to them (the Nadars) and nobody else''.

Thus the sale of shares by Essar to Sivasankaran is illegal, according to them. Sivasankaran returning the shares to the Nadar community and not the original promoters is also illegal, they say.

The original promoters have also moved the courts for the return of the shares to them.

That makes it 18 cases in all. The meeting after the ten-day gap is expected to make or break the current negotiations.

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