Mumbai, June 30: Sumitomo Mitsui Banking Corporation (SMBC) Japans third largest bank is picking up a 4.5 per cent stake in Kotak Mahindra Bank for Rs 1,366 crore.
The Japanese bank will subscribe to a preferential issue of 1.64 crore fresh shares of Kotak Mahindra Bank at a price of Rs 833 per share a premium of almost 12 per cent to Tuesdays closing price of the scrip on the National Stock Exchange.
The Kotak Mahindra Bank stock leapt 3.23 per cent, or Rs 24.15, to close at Rs 770.80 on the Bombay Stock Exchange.
Kotak Mahindra Bank which got a licence in 2003 is the countrys sixth largest bank in terms of market capitalisation, which on Wednesday stood at Rs 26,851 crore.
This is the first investment to be made by a Japanese bank in a domestic private sector lender.
Kotak will use the proceeds to fund organic growth. The stake sale will also provide the bank, which already has a strong capital base reflected in a capital adequacy ratio of 18.35 per cent, a war chest to make acquisitions.
SMBC is the core financial institution of Sumitomo Mitsui Financial Group, the second largest banking group in terms of market capitalisation in Japan, with approximately $1.37 trillion of assets and $3.02 billion of net profit as of March 31, 2010.
SMBC is engaged in providing financial services on its own and through its group companies in commercial, retail and wholesale banking, securities businesses, asset management, project finance, consumer finance and credit card services.
It was established in April 2001 through the merger of two leading Japanese banks Sakura Bank of the Mitsui group and Sumitomo Bank of the Sumitomo group.
SMBC also owns SMBC Capital India Pvt Ltd, which is a 100 per cent subsidiary in India focused on providing advisory services to clients in infrastructure and other similar sectors.
Uday Kotak, vice-chairman and MD of Kotak Mahindra Bank, said the two entities had also entered into a memorandum of understanding to expand business co-operation. They intend to explore opportunities arising from cross-border business, investment and trade flows largely on the India-Japan corridor. The cooperation will cover various businesses of mutual interest, including asset management, alternate assets, investment banking and wholesale banking such as infrastructure finance and external commercial borrowings.
We see this as a significant opportunity for two financial conglomerates to leverage their strengths to serve the Indo-Japan corridor across a range of financial services, Kotak said.
He said the stake sale was also done to comply with the Reserve Bank of Indias stipulation on promoter holding. The central bank stipulates that the promoters holding in a private bank should not exceed 49 per cent.
However, stock exchange data for the period ended March 31 show the promoter holding in Kotak Mahindra Bank at 48.23 per cent and it wasnt immediately clear when the promoters stake had breached the ceiling.
The domestic banking space has in recent times attracted lot of interest from foreign players who want a share of the pie in view of the strong economic growth forecast ahead.
Earlier this month, Rabobank sold a large part of its stake in Yes Bank as it planned to establish a bank in the country. Australia and New Zealand Banking Group has also won approval from the central bank to set up a bank.
Credit Suisse has received in-principle approval to establish a bank, while Goldman Sachs has applied for a licence.