Corporation Bank's board today approved allotment of 2.4 crore preferential shares to Life Corporation of India (LIC) at Rs 196 per share in a deal that would fetch Rs 470.4 crore for the bank.
"We have managed to get a premium of Rs 186 per share, and the share price is way above than the minimum of Rs 144 per share stipulated by the Securities and Exchange Board of India. We would get Rs 470.40 crore from the deal, of which only Rs 24 crore (for 2.4 crore shares at par) would be capital and the rest Rs 446.40 crore premium would shore up our reserves," the bank's chairman and managing director, K Cherian Varghese, said.
After the allotment, LIC's stake in the bank would rise to 26.93 per cent from the present level of 12.32 per cent, which the insurance major had picked up at a price of Rs 80 per share when Corporation Bank had come out with an initial public offer (IPO).
"This will be the first time that a public sector bank has allotted preferential shares to any company," Varghese said.The two companies have recently signed a memorandum of understanding (MoU) under which the bank would market LIC's products from its 700 branches across the country. LIC would pick up Rs 50 crore worth of equity in the bank's subsidiary dealing in gilts, Corporation Bank Securities Ltd.
"The equity will be offered to LIC at a premium, which is being worked out. LIC has a portfolio of Rs 50,000 crore as investments, half of which is in gilts. The deal would help our government securities arm increase its turnover significantly," the chairman said.
LIC and Corporation Bank are also planning to set up a merchant banking arm and are currently working out the modalities of either acquiring an existing company or floating a new entity for the business.
"LIC has a huge investible surplus, while we have a strong network of about 700 branches and over 1000 corporate clients. There are a lot of synergies which can be exploited to our mutual advantage," Varghese said.
Announcing the bank's first quarter results, the chairman said net profits have risen 24.8 per cent to Rs 78.04 crore and aggregate deposits have climbed 19.74 per cent from Rs 14,275 crore to Rs 17,093 crore as compared to the first quarter of 2000-01.
