ING Vysya-Kotak bank deal: Hints of insider trading raise eyebrows

Enormous and robust volumes have been observed in the ING Vysya scrip during the last month or such, just ahead of the Kotak Moahindra Bank merger deal.

The latest announcement by the Kotak Mahindra Bank (KMB) to acquire ING Vysya Bank

Kotak Mahindra Bank -ING Vysya

Kotak Mahindra Bank -ING Vysya

has brought a sudden interest in banking stocks – a sector mired with Non Performing Assets (NPAs) and low credit demand problems.

Now, ING Vysya shareholders will receive 725 shares of Kotak for every 1,000 they hold.The exchange ratio points at an implied price of Rs 790 for every ING Vysya share based on the “average closing price” of Kotak shares during the one month to 19th November – 16 per cent premium.

However, the real catch lies here!

The way ING Vysya stock price shot up in the last month, even though the declaration of merger was just made on November 20, a month later, puts some questions in mind.

In the start of October 2014, the worth of 1,000 ING Vysya shares was just 586 shares of Kotak Mahindra. Then, the value of these shares climbed, but only to drop to 573 shares of Kotak Mahindra (for 1,000 for shares of ING Vysya). Then the value increased again to reach up to 704 shares of Kotak Mahindra, as per the closing price of 20 November 2014.Interestingly, the merger ratio was 725 then.

The questions here: How did price of Kotak Mahindra stock drop down so fast and was it the price of ING Vysya increased significantly during this period?

Performance of both players

In the last year, Kotak Mahindra has fared well, keeping in tandem with CNX Bank Index. However, ING Vysya Bank has failed to keep up with Bankex during the tenor.In the last month of October, ING Vysya Bank rose 29 per cent, a real surprise in itself, when the Bank Nifty gained around 9% and Kotak Mahindra 15%.

ING Vysya climbed up by 25% to Rs 814 as on 19th November from Rs 649 as on 5th November and Kotak Mahindra and the Bank Nifty gained a mere 2% in the same period.

Trading volume

An average of 17,000 shares was traded per day in the month of October 2014 while ING Vysya scrip shot up to 52,821, for November 2014 up to 19 November 2014. Interestingly, the number of shares trading per day of Kotak Mahindra Bank dropped to an average of 46,407 shares (from 65,215 shares traded per day in October 2014).

This shows some insider was passing on information about the chain of developments related to merger taking place.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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