DCB stake to HDFC at face value

Development Credit Bank promoter, Aga Khan Fund for Economic Development (AKFED), has sold nearly 1 per cent stake in the bank to Housing Development Finance Corporation (HDFC) and two other investors for Rs 10 per share, ahead of its IPO. The bank has kept a price band of Rs 22-Rs 26 for its maiden float.

The shares have been sold at face value to HDFC, Amtel Finance and Singapore-based Khattar Holdings to partly compensate them for fixing the bank's IPO price band much below Rs 45, the price at which the three investors had acquired an aggregate of 14.01 per cent stake (106,66,668 shares) in DCB in February 2006 through preferential allotment.

DCB chairman Nasser Munjee said AKFED sold the 2,43,440 shares after appropriate regulatory approvals.

The promoter of DCB and the bank had signed separate subscription agreements on February 16, 2006 with the three investors, making a commitment to price the initial public offering at or above the preferential allotment pricing.

The terms of the agreement are valid and binding on the parties until the listing of the equity shares of the bank. The bank's IPO opens on September 29, 2006 and closes on October 6, 2006.

Following this transaction, AKFED's stake in DCB has fallen to 57.47 per cent from 58.43 per cent. Its shareholding in the bank will further fall to just over 31 per cent after the IPO.

The promoters are required to bring down their stake to 10 per cent or below by March 31, 2007. Munjee said he does not not expect the banking regulator, the Reserve Bank of India (RBI), to force AKFED to bring down its stake within certain period.

As per the Securities and Exchange Board of India (Sebi) norms, DCB cannot issue fresh shares for six months from the date of the listing.

This means reduction in AKFED's stake through dilution is not possible within the deadline. Sebi norms also require the promoter to lock-in 20 per cent of its shareholding for three years.

With the acquisition of the shares from AKFED at face value, the stakes of HDFC, Amtel and Khattar Holdings have increased to 4.99 per cent each from 4.67 per cent. After the IPO, the three investors' holdings would fall to 2.57 per cent each, assuming they do not subscribe to shares in the offer.

The bank's net worth as on March 31, 2006 was Rs 139.3 crore. The bank's net worth is expected to cross Rs 300 crore, the minimum the RBI requires private sector banks to have, after the IPO.