Indusind Lines Up 1:2 Preferential Issue At Par

IndusInd Bank is planning a preferential issue at par. The issue will be in the ratio of one equity share for every two held for shareholders who purchased the scrips at a premium of Rs 40 in March 1995.

The bank, which has already made an application to the Reserve Bank of India, is also planning a maiden public issue at a premium of Rs 32 on a share of Rs 10. Sources said the preferential issue is to appease Sindhi shareholders who had paid a premium of Rs 40 for the Rs 10 share, the amount being higher by Rs 8 than the premium of the proposed public issue.

 

With the preferential issue, the price paid by the original shareholders will be Rs 110 for three shares, whereas the general public will have to pay Rs 126 for three shares. However, it is pointed out that the Rs 16 differential is not enough to cover the holding cost of the shares for more than two years. Says a bank analyst: "Even if one takes a conservative simple interest rate of 10 per cent for two years, the differential should be more than Rs 20." On the other hand, the interest rates were very high in 1996-97. However, Indus Ind, which claims to be number one amongst the newly set up private sector banks, is expected to trade at a minimum of Rs 100 per share on listing and this is likely to more than offset the holding cost. Indus Ind has decided to allot 1 crore equity shares bearing a face value of Rs 10 each at par to the holders of the 2 crore equity shares of the bank issued at a premium of Rs 40 on a preferential basis in March 1995. In case the preferential issue is not fully subscribed, it

may be placed under the employees stock option scheme.

Sources said the move is to assuage the Sindhi community who had picked up the shares at a premium in the Hinduja-promoted bank. After the shares were issued, Indus Ind planned to go public with a premium issue. However, the Sebi guidelines did not permit the bank to tap the market with a premium issue as it did not have a three-year track record of profitability.

Hence, even the Reserve Bank relaxed the guideline that new private sector banks should go public within a year of commencing operations. But since there was no public issue, the shares could not be listed and the original Sindhi shareholders did not have an exit route.This, and the fear that the Reserve Bank might force the bank to go public with a par issue, had irked them a lot.But now the preference issue at par is expected to compensate the original shareholders, sources point out.