)
The proposed share sale is scheduled for January as the state-owned bank targets to wrap up the fund-raising before the current financial year ending March 31, 2014, according to two people familiar with the matter.
SBI officials are likely to start meeting foreign institutional investors (FIIs) with the share sale pitch in January.
The bank was working on a tight schedule to raise the money before March, said a top SBI official. This is because the management wants to push through the issue when the going is good in the stock markets, especially before the general elections in April. Also, investors are less familiar with new chairman Arundhati Bhattacharya’s thinking.
“We are expecting intense questioning about the state of the Indian economy and banks. Also, how the bank is dealing with stress and the quantum of capital required for the medium term,” said a senior SBI official. Analysts agree that investors would have uncomfortable queries about SBI’s outlook.
“Investors are worried about SBI’s asset quality and the management can expect some tough questions. This is because SBI is yet to restructure its bad assets,” said Amit Jain, senior banking analyst at Sunidhi Securities.
Though SBI and the investment bankers are not worried about the share sale, there are concerns about the pricing of the QIP. This is because most of the stake sales in state-owned companies by the government recently have happened at a discount to market prices.
“It will be fine pricing… there will be little room for a discount,” the official said. SBI shares, which closed at Rs 1,757.55 on Monday, have fallen 28 per cent so far in 2013 against an 11 per cent decline in the BSE’s banking index.
Sunidhi’s Jain expects SBI shares to come under pressure ahead of the QIP. The government’s stake in the bank is expected to decline to 54-56 per cent after the QIP, from the present 62 per cent.
In addition to the QIP, the bank will receive about Rs 2,000 crore from the government, which is infusing capital into all state-owned lenders. Both the fund infusions are aimed at boosting SBI’s capital adequacy ratio (CAR), which is at 11.69 per cent. But, the bank’s tier-I capital of 8.73 per cent is below the Basel-II norms.
Morgan Stanley’s analysts see a 25 per cent downside in the stock, despite the proposed fund infusion.
“One of the frequent questions we have received recently is whether the planned capital raise of Rs 115 billion (Rs 11,500 crore) would change our long-held negative view on the stock,” said Morgan Stanley’s analysts led by Anil Agarwal, in a note dated December 20. “Our view is unchanged. We agree that this is a positive step as it improves tier-I ratio by about 80 bps at the consolidated level. However, despite this issuance, SBI’s pro forma common equity tier-I ratio of nine per cent (tier-I ratio at about 9.6 per cent) remains one of the lowest amongst large Asian/Indian banks in our coverage,” they said.
