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State Bank 1:5 rights offer in March

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By OUR SPECIAL CORRESPONDENT in Mumbai
  • Published 14.01.08
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Mumbai, Jan. 14: The stakes are growing higher in the capital issue market.

The State Bank of India today announced plans to raise Rs 16,736.31 crore from a rights issue, which it intends to complete by March. It will be the biggest rights issue in the country.

The issue comes at a price of Rs 1,590 per share and will be offered in the ratio of one share for every five shares held by shareholders.

The SBI share today ended at Rs 2,462.25 on the BSE, which means the rights share is being offered at a discount of over 35 per cent to the current market price.

The Centre now holds close to 60 per cent of the country’s largest bank. It will invest Rs 10,000 crore to retain its stake. The government will not be paying upfront cash. Its contribution will come through bonds that will be issued to the SBI.

Although market circles said the investors would lap up the issue — considering the discount offered and the potential of the SBI growing at around 9 per cent — some were left disappointed by the proposed ratio.

“We had expected a ratio of at least 1:6,” an analyst said.

The rights issue was cleared by the SBI’s central board today.

In a communication to the stock exchanges, the public sector bank said February 4 had been fixed as the record date for the issue. The bank will also increase its issue capital to Rs 650 crore from Rs 526.30 crore.

The SBI had opted for a rights issue to prevent any dilution of the government’s stake.

The bank will also issue shares to employees under the Employees Stock Purchase Scheme. Sources, however, said this should not be confused with ESOPs. Under this scheme, employees who are shareholders of the bank can subscribe to the issue.

Commercial banks have been raising capital from the market to meet Basel II norms. The new capital adequacy norms will be implemented from March 31.

Last year, ICICI Bank had raised nearly $5 billion through a follow-on offering in both domestic and international markets. Earlier, HDFC Bank garnered around $700 million through the issue of American Depository Shares (ADS).

In the past few months, banks have seen their margins come under pressure, but the situation is expected to improve when interest rates soften.