Govt may issue bonds to SBI for rights issue

The government might issue securities to State Bank of India (SBI) instead of paying cash for subscribing to the bank's proposed rights offer, said a senior finance ministry official today.

"We are considering the option of issuing securities to SBI in lieu of our holding when the bank comes out with its rights offer," the official said.

"Since this will not fall under capital expenditure, it will be fiscal deficit-neutral," he added.

The official said these bonds would be tradable and the state-run bank could offload them in the market to raise cash.

The issue of bonds will put off an immediate sizeable expenditure for the government. It will only have to bear the interest cost till the securities come up for redemption.

"We hope to recover the interest cost on the bonds by way of dividends from SBI," the official said. A finance ministry official had earlier said State Bank may raise Rs 18,000-19,000 crore via a rights offer. Given the government's holding of 59.73 per cent in India's largest commercial bank, it will need to invest Rs 10,700-11,300 crore by way of cash or securities.

Shares of SBI hit an intraday high of Rs 1,941 on the report, up Rs 16 from the time the news hit. However, it shed gains later to close at Rs 1,904 on the National Stock Exchange. While the government has already given an in-principle nod to SBI's fund-raising plans, the official said the Union Cabinet was likely to take up the SBI rights issue proposal in the next two weeks.

"We are waiting for the finance minister's approval for the rights offer. Once that is done, we will put it up before the Cabinet. We are targeting to seek the Cabinet approval before Diwali (November 9)," the official said.

STAKE HIKE
The official said government's stake in SBI could go up after the rights issue if some investors did not take up the offer.

"Given that SBI's current share price is over Rs 1,900, we feel some investors, especially retail, may not subscribe to the rights offer. In that case, the government's holding in SBI may go up to 61-62 per cent," the official said.

As on June 30, individual shareholders held 5.2 per cent stake in SBI. The official said the government was also likely to push through amendments to the SBI Act in the Winter session of the Parliament next month.

Once these amendments are approved, the government can cut its stake in SBI to 51 per cent from the current mandatory floor of 55 per cent.

The bank will also be allowed to split the face value of its shares, issue preference shares, make preferential allotment and private placement of shares and issue bonus shares.