Fairfax-backed Catholic Syrian Bank (CSB) is gearing up for a listing in order to meet RBI requirements. The bank, which has enough capital for the next three years, says it is looking at two routes - direct listing, or through an IPO. The latter may involve the sale of both new and existing shares.
Last year, Fairfax got all the approvals to acquire a 51 per cent stake in CSB for around Rs 1200 crore. This is the first stake sale of an Indian bank to a foreign non-banking entity since the RBI tweaked ownership norms in May 2017. One of the conditions imposed by the RBI required that bank is listed before September 2019.
Bank's MD & CEO C V R Rajendran told Business Standard that the bank had roped in Axis Capital as an advisor to manage the listing.
The bank has also approached the Securities and Exchange Board of India (SEBI) requesting approval for a direct listing, where all existing shares become tradable without the need for an initial public offering.
Rajendran cited Spotify and another firm, which have taken the direct listing route.
“We have enough capital for the next three years, so the listing is not for money but to meet the regulator's condition, so we thought we will take the direct listing route.”
“If SEBI doesn’t agree to a direct listing, the bank will pursue the IPO route that may involve the sale of both new and existing shares,” Rajendran added.
The purpose of the IPO is to have a diversified shareholding. In CSB's case, it has already been achieved as the Bank has nearly 28,000 shareholders. The bank is also in compliance with all the listing norms because one of CSB's bonds is already listed in line with Sebi regulations.
The CSB Board, barring two members representing Fairfax, comprises independent directors.
Another option being considered by the bank is to offer the existing shareholders an Offer For Sale. Earlier, many shareholders, having a long association with the bank, did not want to sell their shares because the price being offered was less than what they purchased the shares for.
“Now that the price has been stabilized, most of them might be interested in exiting. We have made an offer to the shareholders to know whether they are interested in offering the shares. Many are showing an interest,” said Rajendran.
CSB may also opt for an issue with Offer For Sale as the main route, in which case, the size of the issue should be at least Rs 400 crore since the company's market capitalisation is over Rs 2,600 crore. If the entire Rs 400 crore is raised through the Offer for Sale, then it will come entirely from the existing investors.
“If Rs 300 crore is coming from investors, the remaining Rs 100 crore will be raised through an IPO. There could be a combination of both happening,” Rajendran said.
When asked if it was the right time to go for an IPO, considering the bank has been reporting losses, Rajendran said that even if the IPO route was considered, around 75 per cent would go to QIB, 15 per cent to HNIs, and only 10 per cent would be made available for retail investors.
“QIP investors are convinced with CSB's turnaround story and they have shown interest,” said Rajendran, who declined to give any outlook statement.
CSB reported a profit of Rs 74 lakh during the quarter ended December 31, 2018, as against a loss of Rs 46.51 crore during the same period last year. Net NPA during the quarter was 3.67 per cent as against 4.45 per cent, a year ago.
Fairfax Chairman Prem Watsa, in a letter to the shareholders, recently said that after Fairfax India’s investment in CSB, Rajendran had given a strategic direction to CSB focusing on profitability, productivity, efficiency and asset quality.
“He (Rajendran) has set the following goals that CSB will strive to achieve over the next five years: return on assets of 1.5%, return on equity of 18%, net interest margin of 3.9%, revenue per employee of Rs 4O lakh, cost to income ratio of 46% and net NPAs of 1.1 per cent,” said Watsa.