Sebi exempts govt from making open offer for Central Bank

Market regulator Sebi has exempted Government of India (GoI) from making an open offer for public shareholders pursuant to its proposal to hike stake in Central Bank of India to 85.31%.

The government has proposed to acquire about 30.84 crore shares of the bank through preferential allotment. This would increase the government's holding in the bank from 79.15% to 85.31%.

In an order issued yesterday, Securities and Exchange Board of India (Sebi) said "this is a fit case to grant exemption...To the Government of India from the obligation to make an open offer".

The regulator said the government which is expected to infuse Rs 2,406 crore into the Central Bank of India would enable the PSU lender to achieve the 8% 'Capital to Risk-weighted Assets Ratio (CRAR)' as per the BASEL II norms.

"Higher CRAR is a factor that represents that a bank or a financial institution has sufficient capital in order to keep it out of financial difficulty and protect the interest of its depositors and in turn the economy," Sebi said.

Further, the issue price of Rs 78 per share is found to be in accordance with regulations on 'Issue of Capital and Disclosure Requirements', it said.

"The target company (the bank) has also undertaken that the capital raised through the preferential allotment to Government would not be used by it for making investment in whatever form, in any of its subsidiaries, joint ventures etc," Sebi said.

It also observed that the hike in the stake of Government in the bank following the proposed preferential allotment, the minimum public shareholding would be maintained.

As per official documents available with Sebi, Government has decided to infuse capital to the tune of Rs 2,406 crores into the bank through preferential allotment of shares.

Further, the bank's board of directors have approved the same and have also called for an Extra-Ordinary General Meeting (EGM) of shareholders on March 18, 2013 to pass necessary resolution for issue of shares to GoI.

"It has been submitted that the infusion by Government would also give additional leverage to the target company to raise further equity capital from the public by way of rights/ follow-on public offer or from Qualified Institutional Placement (QIP/GDR) at a later date, as and when the need arises," the order said.

Central bank of India had filed an application with Sebi dated February 15, 2013 on behalf of the GoI seeking the exemption.