SUUTI to subscribe to UTI Bank pref offer

The largest shareholder in private sector UTI Bank, the Specified Undertaking Unit Trust of India (SUUTI), and the management of the bank appear to be close to resolving the problem over the bank?s proposed $1 billion capital issue plan, with SUUTI making it clear that it would subscribe to the bank?s preferential offer, which is linked to the capital issue. The UTI Bank EGM, which was held last month and remained inconclusive on this issue, will reconvene on July 13.

SUUTI administrator SB Mathur told FE on Wednesday that the Undertaking, which holds 27.33% in UTI Bank, will subscribe to the preferential offer. SUUTI will have to fork out at least Rs 650 crore for it. ?There was no real confusion on this. We have already made it clear that we will subscribe to the offer,? Mathur said. ?Liquidity is not a problem.?

SUUTI, the mandate of which is to pay off all liabilities of the erstwhile Unit Trust of India and wind down, has assured returns schemes maturing in October 2008 and March 2009, and hence it was believed that it would have to examine very carefully whether it wanted to subscribe to the bank?s preferential offer.

The capital issue is of $600 million, and the remaining will be the preferential offer to promoters.

Life Insurance Corporation (LIC) holds another 10.34%, and the total promoter shareholding, including other insurance companies, stands at 42.95%.

On the vexed issue of whether the bank will go for a pure global depositary receipt (GDR) offer or a mix of a GDR and a follow-on public offer (FPO), the bank has made it clear to the government that it would prefer a GDR issue as that would give it better pricing. Besides, the bank has argued that even the GDRs eventually get converted into local shares and come into the Indian market, and hence the Indian public would not be denied of a share of the new offer. ?Of our last GDR, which let to a 15% dilution, only 3.5% now remains in the form of GDR. The rest have all been converted to domestic shares. So even in this case, the domestic shareholder will eventually be able to buy from the secondary market,? bank sources said. The bank?s top management and the government shareholders have had several rounds of discussion since the EGM was held last month, to come to a solution on this issue. A GDR issue will take UTI Bank?s overseas shareholding from the existing 40% to about 45%.

Mathur said he would talk to Life Insurance Corporation (LIC) and the other government shareholders and said a solution was imminent by July 13. ?An amicable solution is being arrived at. I will be speaking to LIC also,? he said. SUUTI had earlier said it was mulling seeking a domestic share sale also, to give Indian retail shareholders a chance to participate.

Bank sources were, however, confident that the solution was now a mere formality, and that an FPO would not be required. ?Even other banks which had FPOs had to offer discounts to lure retail shareholders. That affects pricing. Institutional placements always give better pricing and is good for the bank,? sources said.

While Mathur did not spell out how SUUTI would fund the Rs 650 crore required to subscribe to the preferential offer, sources explained that one option could be for SUUTI to sell from its existing holdings six months later, when the lock-in on existing holdings is lifted. The new shares will have a three-year lock-in.