Life Insurance Corporation of India (LIC) is likely to subscribe to the UTI Bank's preferential offer of equity shares to allow promoters to keep their stakes unchanged after the bank's planned $600 million global depository receipts (GDR) issue. | |
| The GDR issue will be 15 per cent of the post-issue paid-up capital of the bank. To enable the promoters to maintain their stake, the bank has decided to offer about 3.19 crore shares on a preferential basis to the Specified Undertaking of the Unit Trust of India (SUUTI), LIC and General Insurance Corporation (GIC). The promoters have the option of not subscribing to the preferential allotment. |
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| LIC currently holds 10.38 per cent stake in UTI Bank. The bank will offer around 76 lakh shares to LIC to maintain its shareholding in the bank at the current 10.38 per cent. At the current market price of Rs 575.85, LIC will have to invest around Rs 450 crore. |
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| SUUTI, the largest shareholder in UTI Bank with 27.43 per cent stake, is yet to decide on the preferential offer. The undertaking will be offered around 2.03 crore shares. It will have to spend around Rs 1,170 crore to maintain its stake at the current level. GIC with a 2.38 per cent stake will have to invest around Rs 50 crore to pick up around 7 lakh shares that will be offered to it. |
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| "We will do what we have to do. The decision to subscribe or otherwise will be taken by the SUUTI board. The board meeting will be held after June 15,'' said S B Mathur, administrator, SUUTI. |
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| Banking sources said subscribing to the preferential offer would be a difficult call for SUUTI as its decision would depend on its liquidity conditions, the likely appreciation in the price of the bank's shares, and most importantly, the future course of action that SUUTI intends to take on its shareholding in UTI Bank. |
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| LIC has also left the decision on its investment committee. The sources indicated that the insurance company was bullish on the financial sector and likely to subscribe to the shares. The public sector life insurer has been urging the government to provide it the first right to purchase the stake held by SUUTI. |
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| A senior LIC official said, "It makes sense for an insurance company to own a bank or a bank to own an insurance company. LIC should be given the first right (to buy SUUTI's stake) as it was the co-promoter of the bank.'' Apart from UTI Bank, LIC holds around 27 per cent stake in Corporation Bank and recently has picked up marginal stake in City Union Bank, a old private sector bank. |
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| "The GDR issue, offer of shares to the promoters on a preferential basis and the pricing would happen simultaneously. We thought conducting the preferential issue simultaneously was the fairest way to raise adequate capital and ensure good corporate governance practice wherein the existing promoters are given the option to maintain their shareholding,'' P J Nayak, chairman and managing director, UTI Bank, said. |
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| The bank will not increase the size of the GDR issue even if the promoters decide not to subscribe to the preferential offer. |
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| "The capital raised through the GDR will support the bank's growth for the next three years. The GDR issue will enable the bank support its growth plans, for Basel II and also give us the confidence to explore wider opportunities in the financial services space,'' Nayak said. |
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| The bank's capital adequacy ratio (CAR) after the GDR issue would be a little over 13 per cent. If the preferential offer of shares is subscribed to by the promoters, the capital adequacy would rise further. Its authorised capital after the GDR issue would increase to Rs 500 crore from Rs 300 crore. |
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