Aga Khan Fund to cut DCB stake

The Aga Khan Fund for Economic Development (AKFED) will reduce its stake in Development Credit Bank (DCB) to 10 per cent from the current 58.43 per cent by March 31, 2007.

While granting approval for DCB's initial public offer, the Reserve bank of India (RBI) has stipulated that the holding of AKFED, the promoter of the bank, should be reduced to 10 per cent within one year from the date of listing of equity shares.

"The reduction in the holding of AKFED would be achieved through a combination of fresh issue of equity shares or any convertible instrument by the bank and/or sell down by AKFED and/or merger," DCB said in the draft IPO prospectus filed with the Securities and Exchange Board of India (Sebi).

AKFED, a limited liability company incorporated under the laws of Switzerland, had its holding reduced to 58.43 per cent from 68.9 per cent on preferential allotment to Housing Development Finance Corporation (HDFC),

Khattar Holdings Pte Ltd and Amtel Finance on February 17, 2006. AKFED is a part of the Aga Khan Development Network and is a for-profit international development fund engaged in promoting entrepreneurship and building economically viable enterprises in developing countries.

RBI, in its approval letter, had also asked DCB to indicate a roadmap for the reduction in AKFED's stake in the IPO prospectus. The bank plans to raise about Rs 300 crore from the IPO.

The guidelines on ownership in private sector banks require any individual, entity or group of related entities holding or controlling in excess of 10 per cent of the total paid-up share capital to submit a timetable for the reduction of the shareholding to 10 per cent or below.

The listing of shares of DCB was one of the conditions of the original banking licence issued to the bank. DCB came into existence following the conversion of Development Co-operative Bank into a banking company on May 31, 1995.

Development Co-operative Bank was one of the 11 cooperative banks which were given permission by the RBI in the 1990s to convert into scheduled commercial banks.

DCB had made a preferential allotment of 1,06,66,668 shares (or 14.01 per cent of the share capital) at a price of Rs 45 per share to HDFC Ltd, Khattar Holdings Pte Ltd and Amtel Finance (4.67 per cent each).

Agreements signed by DCB and AKFED with the three investors has a clause which states that the pricing of shares offered in the IPO cannot be lower than the pricing of the shares offered in the preferential allotment. HDFC holds 4.76 per cent stake .