Kotak Mahindra Bank may raise Rs 8,000 crore via equity dilution

By: |
April 21, 2020 2:00 AM

Market is viewing the fund-raising announcement in a positive light as the lender’s move to build up capital reserves is being seen as a sensible move at a time of uncertainty.

At the end of December, promoter Uday Kotak held 29.96% stake in the bank.At the end of December, promoter Uday Kotak held 29.96% stake in the bank.

Kotak Mahindra Bank (KMB) may raise Rs 8,000 crore via equity dilution, analysts said, following the announcement it made on Sunday. This amount would be raised through a 4% stake sale, given that the lender’s market capitalisation is at Rs 2 lakh crore.

Sector experts say that the fund-raising is targeted mainly at dilution of the promoter’s stake in order to comply with regulatory requirements. On February 18, the RBI had allowed KMB a six-month timeline – up to August – to reduce promoter shareholding to 26%. At the end of December, promoter Uday Kotak held 29.96% stake in the bank.

After August 2020, the promoter will not buy any additional shares of the bank till the stake drops to 15%. “Thereafter, the promoters will not purchase any further paid up voting equity shares’ of the bank till the percentage of promoters’ shareholding reaches 15% of PUVESC (paid-up voting equity share capital) of the bank or such higher percentage as may be permitted by RBI from time to time,” KMB had told the exchanges on January 30.

Market is viewing the fund-raising announcement in a positive light as the lender’s move to build up capital reserves is being seen as a sensible move at a time of uncertainty. KMB’s shares ended 0.75% lower than their previous close at Rs 1,177.55 on the BSE on Monday.

Some market watchers were of the view that the fresh capital could help KMB prepare for likely acquisitions. “They will be building capital for acquisitions. There are enough companies with a good asset base which are now trading at a very low valuation,” said a banking analyst who did not want to be named.

Most analysts agree that KMB does not need capital to take care of its provisioning needs. At the end of December 2019, the bank had a capital adequacy ratio (CAR) of 18.21% against the regulatory requirement of 11.075%. KMB’s Tier-1 ratio was 17.7%.

The reduction of promoter shareholding in KMB had become a major flashpoint between the bank and the RBI before both relaxed their positions in January this year. Kotak was supposed to reduce his stake in the bank to 20% by December 31, 2018 and to 15% by March 31, 2020. In August 2018, the bank had proposed issuing perpetual non-cumulative preference shares (PNCPS) to cut promoter stake to 19.7% and enable the promoter to hold on to their voting rights. The RBI shot down the proposal.

KMB then moved court against the regulator. On January 30, 2020, KMB finally said that it had decided to limit the promoter’s voting rights at 15%, April 1 onwards. This followed the RBI’s decision to allow the bank an additional six months time to cut promoter stake to 26%. KMB also withdrew the court case against the regulator.

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