Kotak Bank Plans to Sell 65 Million Shares to Raise Capital
Kotak Bank plans to sell 65 million shares in order to strengthen its capital buffers, reduce stake held by its wealthy founder.
(Bloomberg) -- Kotak Mahindra Bank Ltd. plans to raise about $1 billion with a new share issue in a move that will strengthen its capital buffers and reduce the stake held by its wealthy founder.
The Mumbai-based lender didn’t provide pricing details on the 65 million of new shares it said it will issue in a filing on Wednesday. However, under a regulatory formula, they should be priced around the level of the latest two-week average, which works out at about 1,184 rupees ($15).
That would put a total value on the offering of about $1 billion, depending on the market price at the time of the issue.
The capital raising will provide an additional buffer as Indian banks brace for a surge in loan defaults due to a lockdown on the economy intended to contain the spread of the coronavirus. Other lenders including IndusInd Bank Ltd., Yes Bank Ltd. and Bank of Baroda are planning to raise new capital.
The announcement follows the resolution in January of an unusual legal feud with the Reserve Bank of India over the pace at which Uday Kotak should reduce his stake in the lender he founded. The two sides agreed Kotak should lower his holding to 26% from 30% by August.
Kotak Mahindra Bank didn’t specify the extent of the dilution under the latest plan, but analysts at Morgan Stanley calculated it will reduce Kotak’s holding to 29%.
The offering may also provide some funding for Kotak Mahindra Bank to make new acquisitions. After purchasing ING Vysya Bank in 2015, it invested 5 billion rupees in Yes Bank last month as part of the 100 billion rupee bailout by a group of eight lenders.
The bank’s shares were up 1.7% at 1,149.70 rupees in Mumbai after the announcement.
Kotak Mahindra Bank has less need of the additional capital buffer than most. Its capital adequacy ratio was 18% at end-December, double the regulatory minimum. Its gross bad loan ratio was 2.5%.
However, the bank has also become more cautious as a result of the lockdown, which has left businesses struggling to stay afloat and job losses rising. The bank’s loan book grew at 6.7% in the March quarter, the slowest in at least three years.
Uday Kotak is Asia’s richest banker and worth about $9.4 billion, according to the Bloomberg Billionaires Index.
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