UWB to come out with bonus, rights issue

United Western Bank Ltd (UWB) proposes to come out with a bonus and rights issue of shares.

The UWB board of directors will meet on August 26 to discuss the recommendations made by the committee constituted by it to raise Rs 250 crore capital before the end of the current financial year.

The price of UWB stock surged 20% to a high of Rs 64.70 on the back of the bank's announcement of the proposed issuance of shares on the Bombay Stock Exchange (BSE). The scrip ended the day at Rs 60.95, up 13% from Wednesday's close. This was even as the BSE Sensex closed lower, yesterday.

"The committee was constituted to raise capital for the bank in order to be RBI-compliant in terms of meeting the capital adequacy ratio of 9 per cent and a networth of Rs 300 crore," said Satish Marathe, chairman and CEO, United Western Bank.

He ruled out any strategic alliance or strategic investor, adding that the shares would be allotted only to the bank's existing shareholders.

UWB has planned to raise Rs 250 crore in the current fiscal and an additional Rs 125-150 crore next fiscal, which would help the bank augment its net worth to Rs 300 crore. As on March 31, 2005, the bank's net worth stood at Rs 185.63 crore.

The bank posted a net loss of Rs 98.64 crore in FY05, of which Rs 68 crore was posted in the last quarter. Though its net non-performing assets (NPAs) stood reduced at 5.83 per cent as on March 31, 2005, against 8.95 per cent the year before, this was after the bank had made a higher provision of Rs 182 crore.

Following the net loss and capital adequacy ratio standing lower than the stipulated 9 per cent, CARE Rating agency downgraded the private sector bank's tier-II bonds, aggregating Rs 134.7 crore, to BB+ in July this year.

The revised rating implies that the bonds will be of speculative nature, with inadequate protection for interest and principal payment.

Marathe said the bank has written to the agency, stating it was incorrect on the part of the agency to question the bank's debt-servicing capability on the back of its posting a net loss and the networth standing reduced.

"Our bonds do not become 'speculative' or affect our ability to service the same," he pointed out. The rating agency is relooking at the revised rating and has asked for additional financial information from the bank, he added.