CDC Capital Partners has asked UTI Bank to bring in a strategic investor acceptable to them by December 31 this year or CDC will have the right to recommend one or more investors to the bank.
UTI Bank had in September last year made a preferential issue at Rs 34 per share to CDC Capital Partners (formerly known as Commonwealth Development Corporation).
CDC had picked up a 26 per cent stake for Rs 157.59 crore through two funds -- South Asia Regional Fund and CDC Financial Services. The bank had allotted 9.99 per cent to South Asia Regional Fund and 16.02 per cent to CDC Financial Services (Mauritius).
The bank has already kicked off the process of identifying new investors and the due diligence process is on. Sources said three investors -- including Chrysallis Capital -- are in the race. JP Morgan is believed to be conducting the due diligence for one of the investors.
According to the shareholders' agreement, if a strategic investor which is not acceptable to CDC comes in by December 31, 2003, CDC has the right to sell all or some of its shares in UTI Bank to other 'person(s)' who would have the same rights as CDC.
Moreover, UTI cannot sell more than 5 per cent of the bank's paid up capital in any 12-month period in a manner that would adversely affect the bank's share price.
UTI had made a preferential allotment of about 1.35 crore equity shares at Rs 39.04 per share to LIC, GIC, National Insurance Company and New India Assurance Company in March this year. Its stake in the bank is now reduced to 41.71 per cent.
UTI cannot bring down its stake in the bank to less than 26 per cent unless UTI and the investors mutually agreed that it would be in the best interest of the bank. If UTI wants to bring its stake to less than 26 per cent, each investor shall have the right of first refusal and a tag-along right.
The tag-along right will, however, not be applicable if UTI is forced to sell its shares because of a statutory direction and "despite UTI's best efforts to give to the investors a tag-along right, giving of such tag-along right would prevent UTI from complying with the said statutory direction".
UTI Bank also cannot appoint or remove "the chairman and managing director, managing director, manager (as defined by the Companies Act 1956), executive director or presidents of the company" in any meeting where CDC's director are not present, or without their consent.
The bank will also have to appoint a selection committee for the appointment to the senior management posts of the bank. CDC will have the right to jointly nominate one member on this committee and all decisions in the committee "will be taken with unanimous approval of all members."
CDC has also asked the bank to obtain an "unconditional written consent of UTI" for using the 'UTI' name as part of the bank's name without any payment to the mutual fund. The consent can be terminated only if UTI's shareholding in the bank is brought below 10 per cent.
