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Govt banks develop cold feet on QIPs

By Nishanth Vasudevan, M Saraswathy & Somasroy Chakraborty
February 04, 2014 11:14 IST
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Some lenders in talks with LIC for pvt placement

State-run banks have put their qualified institutional placement (QIP) issues on hold till the market sentiment improves, as they believe convincing foreign institutional investors (FIIs) to purchase their shares amid stock market volatility will be a difficult task.

Several public-sector lenders — Syndicate Bank, Allahabad Bank, Dena Bank, IDBI Bank, Syndicate Bank and Indian Overseas Bank, among others — had over the past few months announced their plans to raise money through the QIP route.

These issues were aimed at raising over Rs 4,000 crore (Rs 40 billion). But FIIs’ muted response to the share-sale programme of State Bank of India, the country’s largest lender, has made most of them wary.

While some of the banks have decided to wait till the market conditions improve, others are planning to tap the private-placement route for funds. Some have started discussions with Life Insurance Corporation (LIC), which played a big role in the SBI issue.

A senior LIC executive confirmed discussions were on but the institution had yet to take a call on these.

“We will not launch a QIP programme at this juncture. We will wait for the markets to improve,” the chairman & managing director of one of the banks told Business Standard. The state-run bank has now entered into an in-principle agreement with a domestic institution to raise up to Rs 400 crore (Rs 4 billion) through preferential allotment of shares. It is likely to follow it up with a QIP or bond issue in the next quarter, as it aims to improve its Tier-I capital adequacy ratio to eight per cent.

An uncertain macroeconomic environment, volatile financial markets, the US Federal Reserve’s announcement on tapering of its monthly stimulus and mounting bad assets of local lenders appear to discourage foreign investors from putting money in share sale programmes of public-sector banks. The benchmark Sensex has lost nearly six per cent, or 1,150 points, since its peak reached on January 23.

Last week, SBI’s share-sale programme had fallen short of its Rs 9,500-crore (Rs 95 billion) target, as many FIIs, including the top names, skipped the issue over difference on pricing and concerns over non-performing assets.

Industry analysts say public-sector banks are in a catch-22 situation — while they need money to meet the new capital rules and finance business growth, the market is not conducive to fund-raising programmes.

“Typically, in QIPs, shares are offered at a discount to the market price. But some stocks of some public-sector banks are currently trading at historic lows. So, I am not sure if they will be keen to sell shares at further discounts. If they do so, investors will be buying gold at the price of copper,” said the chief strategist of a broking and investment banking firm who did not wish to be named.

Bankers suggest some of the upcoming share-sale issues could be marketed to emerging-market investors to improve overseas investors’ participation. “The size and timing of the issues will also be crucial for their success,” said an executive director of a mid-sized investment bank.

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Nishanth Vasudevan, M Saraswathy & Somasroy Chakraborty in Mumbai/Kolkata
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