Retail investors to pay 10% less for SBI rights

Bank may be first to take Sebi's fast-track route.

State Bank of India (SBI), the country's largest lender, will be offering 10 per cent discount to retail investors in its Rs 16,742 crore rights issue.

The bank is likely to be the first to make use of the new fast-track issuance route, with the government clearing the investment of Rs 10,000 crore in SBI shares to ensure that its shareholding remains at least at the current 59.73 per cent. Retail shareholders own 5.78 per cent of the bank's shares.

The fast-track issuance route was introduced by capital market regulator Securities and Exchange Board of India (Sebi) yesterday, along with permission for issuers to offer up to 10 per cent discount to retail investors.

A person privy to the development said, "We will be giving 10 per cent discount to retail investors as allowed by the regulator. We will be going in for the fast-track issuances route as we will be qualifying for all the criteria set out by Sebi. If we would have gone through the whole process, we would have just made it, but this new route gives us some breather."

Sebi yesterday allowed companies to offer up to 10 per cent discount to retail investors in all issues. Earlier, the discount was restricted to follow-on offers.

In another major change in the share issuance norms, the regulator has allowed big corporate houses to raise funds through the fast-track route.

The government will not be paying in cash to subscribe to its entitlement in the rights offer by SBI. It will instead issue marketable SLR (statutory liquidity ratio) bonds to SBI, which it can sell to other banks if it needs cash.

The actual number of shares to be subscribed, total amount subscribed, coupon rate and tenure of the securities and other modalities will be worked out by the government in consultation with SBI, keeping in view the extant Sebi guidelines, market conditions and other relevant factors.

The government expects an outgo of about Rs 790 crore on bonds it would issue to SBI to subscribe to its rights entitlement, which would work out to a coupon of 7.9 per cent on the bonds.

This is the current market yield on the benchmark 10-year government bonds. The bank is still to take a view on whether it would be able to make a rights offer to its global depository receipt (GDR) holders.

Additionl reporting with SHRIYA BUBNA and ABHIJIT LELE