Sale of SUUTI's 21.5% stake in Axis Bank put on hold

The proposed divestment of 21.5 per cent stake in Axis Bank by state-run Special Undertaking of Unit Trust of India (SUUTI) has been informally put on hold for lack of buyers.

State-run SUUTI, which owns 27 per cent in Axis Bank, put 21.5 per cent on the block ahead of winding-up arrangements by March 2009 (the remaining 5.57 equity is under a lock-in period).

The institution appointed three investment bankers – JP Morgan Chase, Citibank and ICICI Securities -- as advisors for the issue in August this year.

The plan was to complete the transaction by December, but the falling stock markets, which have seen more than half investor wealth wiped out since their January peak, has seen most buyers retreat.

“The process has come to a halt because no investors have shown keen interest at this point of time,” confirmed an investment banker handling the sale.

The head of a foreign bank added that some sovereign funds, large pension funds or global banks with large exposures in Indian securities had initially shown interest, but have since been dissuaded by the sharp deterioration in sentiment.

“We are hoping sanity will return in the next couple of months, then we will revisit the process, possibly in the first quarter of 2009 or even later,” he said.

Given current trends, he added, the transaction was unlikely to be completed in the current financial year.

Given this, it is unlikely that SUUTI, which was created in 2002 to park some investments by US 64 and other assured return schemes of Unit Trust of India as part of a bailout package, will meet the winding up deadline either.

Under the mandate, no investor can acquire more than 5 per cent and cannot have a role in the management of the bank, formerly known as UTI Bank.

The government was reportedly looking at a marginal premium of 5 to 10 per cent over the market price.

Initial estimates suggest that the deal would have fetched around Rs 6,000 crore. “Since it was a block deal, some of the investors would have paid premium to the underlying price in the secondary market,” they added.

The Axis Bank counter has not seen panic selling and currently trades around Rs 600 against a price range of Rs 700 in August, when it was put on block.

Besides Axis Bank, SUUTI continues to own almost 12 per cent in ITC and 9 per cent in Larsen & Toubro and has been in discussions with these managements for stake sales.