CLSA, Merrill, four others may manage SBI rights issue

CLSA and Merrill Lynch & Co are among six investment banks set to arrange State Bank of India's $4.2 billion share sale, three people familiar with the plan said.

Citigroup Inc, Deutsche Bank AG, Kotak Mahindra Capital Co and SBI Capital Markets may also underwrite the rights offer by the Mumbai-based bank, India's largest, the people said, declining to be identified before a formal announcement.

State Bank's closest rival, ICICI Bank, led a record year for share sales by Indian companies as lenders raised funds to meet accelerating credit demand in the world's fastest-growing major economy after China. Merrill is the top-ranked adviser for a third year in India as companies sold $25 billion of stock.

"The share sale will be made easier with economic and banking sector growth still strong," said RK Gupta, who manages the equivalent of $100 million of stocks at Credit Capital Asset Management in New Delhi.

The 200-year-old bank, which has more than 9,500 branches catering to 100 million customers, follows ICICI Bank, HDFC Bank and Axis Bank, who are among Indian lenders that have raised a combined $8 billion selling shares this year to meet rising demand for credit.

Merrill exits
Merrill, which also advised ICICI Bank and HDFC Bank on their share sales, has retained its top spot in India even after losing Sumeet Puri, head of equity capital markets, and joint managing director Amit Chandra, who quit to set up his own private equity firm.

While State Bank's share sale will rank as India's second- largest, secondary issues typically yield lower fees.

In the ICICI Bank sale in the US and India, Merrill's fee was 0.5 per cent, and with the HDFC Bank sale, the New York-based securities firm earned 2.05 per cent, according to Bloomberg.

By contrast, banks arranging the initial sale of Maytas Infra earned 4.6 per cent, while arrangers of real estate company Omaxe first-time sale were paid 4.1 per cent.

State Bank, 59.73 per cent state-owned, plans to raise about Rs 16,700 crore ($4.2 billion) selling shares to existing investors by March 31.

The appointment of investment banks will be announced after the government approves the plan, the people said. Officials at State Bank and the arrangers declined to comment.

CLSA boost
The State Bank mandate could help boost the ranking of CLSA, the Asian investment banking unit of France's Credit Agricole SA, among advisers in India.

CLSA, which has worked on only one Indian share sale this year, according to data on Bloomberg, has an alliance with State Bank to seek investment banking business in India.

CLSA's Chairman Rob Morrison said on November 14 that he was interested in expanding the relationship with State Bank to get more deals and was keen to hire more people.

State Bank rose Rs 6.9, or 0.3 percent, at 2,265.2 at 3:30 p.m. close on the Bombay Stock Exchange. The stock has gained 82 per cent this year, more than double the 39 per cent advance in the benchmark Sensex index.

The share sale will also catapult State Bank past ICICI Bank as India's most valuable, from its current market capitalization of $31 billion. ICICI is worth $32 billion.

State Bank may need as much as Rs 1 trillion over the next five years to fund its expansion, Chairman OP Bhatt said in June. The bank's share of loans in India declined to 15.4 per cent as of September 30 from 17.4 per cent in March 2003.

The bank's $187 billion of assets are a fifth of those of China's biggest, Industrial and Commercial Bank of China, and a 10th of Citigroup, the largest US bank. State Bank is raising money as India prepares to permit overseas rivals to acquire private banks after a policy review in 2009.