UTI Bank is likely to finalise a preferential issue in favour of Tata Sons at its board meeting on January 16. The holding firm of the Tata group is set to pick up 10 per cent in the bank.
CDC Capital Partners, a strategic investor which holds 24.2 per cent stake in the bank and which had earlier raised some objections to the preferential issue, is willing to accept the Tatas as an investor, sources said.
In the run-up to the meeting, the bank has asked all its employees to detest trading in the bank's shares for the next 15 days. This is to conform to the insider trading rules of the Securities & Exchange Board of India.
Other private sector banks such as ICICI Bank and HDFC Bank follow this rule ahead of placement of stakes.
Tata Sons, the holding company of the Tata group, has already completed the due diligence of the bank. The bank is in discussions with Tatas to fine-tune the modalaties of the investment.
The bank will also discuss its third-quarter results in the board meeting. According to UTI Bank officials, the bank is likely to complete its preferential issue before the end of the fiscal.
However, it has not yet decided whether there will be only one investor or a clutch of investors to pick up small blocks of the preferential issue.
The bank had appointed Salomon Smith Barney as its investment banker to raise additional equity through the preferential issue. SSB had received expression of interest from six suitors including Chrysalis Capital, JP Morgan, Development Bank of Singapore. UTI owns 41.74 per cent in the bank.
The bank had in September 2001 made a preferential issue to CDC at Rs 34 a share. However, according to the agreement, UTI Bank had to bring in a strategic investor acceptable to them by December 31 this year.
Otherwise, CDC would have the right to recommend one or more investors to the bank. Though there was initially some resistance from CDC this now seems to have died down. Bank officials said they are not anticipating any problems. This clears all deck for Tatas investment into the bank.
According to the current RBI regulations, large corporates can have only 10 per cent stake in a bank. Due to this, Tata Sons is likely to treat this holding as an investment.
However, in future if the regulator relaxes the norms, the Tatas may emerge as a strategic investor in the bank.