RAMS shares plunge again after Westpac deal

SYDNEY (Reuters) - Shares in Australian mortgage lender RAMS Home Loans Group Ltd (RHG.AX: Quote, Profile, Research, Stock Buzz) tumbled as much as 27 percent on Wednesday, compounding the previous day's blood-letting as doubts crept in over its deal with Westpac Banking Corp (WBC.AX: Quote, Profile, Research, Stock Buzz).

RAMS also on Wednesday increased the size of a mortgage-backed bond issue to A$300 million from A$250 million previously as it seeks more funding.

Shares in RAMS were down 21.2 percent at A$0.52 at 0101 GMT, having fallen as low as A$0.48, less than one-fifth of their August listing price. It ended over 22 percent lower on Tuesday.

Westpac said on Tuesday it would buy RAMS' distribution business and takeover its future loan business in a A$140 million ($125 million) deal.

Merrill Lynch analysts said the sale valued RAMS at 40 cents per share. It had previously valued RAMS at 65 cents per share.

"While RAMS is subject to no-shop and no-talk provisions in its agreement with Westpac, we would not rule out another counter bid for the RAMS franchise," Merrill Lynch said in a note to clients.

Westpac, Australia's fourth-largest bank, also agreed to refinance some of RAMS' debt, but not take on its existing mortgage book.

Westpac shares were 1.2 percent firmer at A$29.36.

RAMS failed to refinance A$6.17 billion in debt in August after liquidity dried up in global credit markets in the wake of the U.S. subprime mortgage crisis, sending its shares plummeting and prompting takeover talk.

The Westpac deal leaves RAMS with its existing A$14.5 billion loan book and to service any new business up to November 14. It will remain a separately-listed company.