BoI fixes floor price at Rs 359 a share

State-run bank to mop up Rs 1,400 crore from MFs via QIP.

In the first fund-raising by a public sector bank through the qualified institutional placement (QIP) route, Mumbai-based Bank of India will raise Rs 1,350-1,400 crore by the end of January. The bank will issue 3.77 crore equity shares at a minimum share price of Rs 359 each to mutual funds and public sector enterprises.

After the issue, the government holding in the bank will come down by 5 per cent to 64.47 per cent from 69.47 per cent currently. The government has given its approval for the bank's capital-raising plan, subject to the condition that the placement of shares will be made only with public sector enterprises and mutual funds.

"We are diluting a small 5 per cent holding to have buffer capital. This will meet our credit expansion needs and investments in lucrative joint venture opportunities along with other banks and entities, which may require capital in the near future, including the life insurance joint venture (with Union Bank of India and Japan's Dai-Ichi Insurance), said T S Narayanasami, chairman and managing director, Bank of India. The bank would initially need to invest Rs 127 crore for its 51 per cent stake in the life insurance venture.

The capital infusion will also help the bank meet increased capital requirements under the Basel-II norms. The bank's capital adequacy is expected to be impacted by close to 100 basis points under the new capital norms.

At the end of September 2007, the bank's capital adequacy ratio (CAR) was 12.57 per cent. Of this, the tier-I capital was 7.08 per cent and the tier-II capital was 5.49 per cent.

The bank's board approved the capital-raising plan today. The shareholders will meet on January 23 to consider the proposal. The floor price of the issue has been fixed at Rs 359, according to the Securities and Exchange Board of India (Sebi) guidelines.

"At the current floor price, we have discussed that we will raise Rs 1,350-1,400 crore. There can be a premium subject to the stock price then at the time of tapping the issue money," said T S Narayanasami, chairman and managing director, Bank of India.

The issue will push the bank's tier-I capital ratio to over 8 per cent.

"Once again this puts us at a very advantageous position. There is room for further dilution depending on needs. This also creates little headroom for us to raise the tier-I capital in the form of perpetual debt, preference capital, tier-II capital and foreign institutional investor holding," said Narayanasami.

The bank has appointed JM Financial, SBI Capital Markets, Kotak Mahindra Bank, HSBC Securities, Edelweiss Securities, AK Capital Services and Motilal Oswal as arrangers for the issue. The FII holding in the bank is currently at 16.44 per cent.

The bank has already raised Rs 650 crore of the tier-I capital this year through the issue of perpetual bonds and Rs 734 crore of the tier-II capital through revaluation of assets.

The bank sees a year-on-year credit growth of 27-28 per cent for the quarter-ended December 2007 with demand coming from infrastructure, steel and engineering goods sector.

The bank plans to form a joint venture for asset management business.