Uco to recast capital, offer pref shares to govt

Uco Bank is considering the possibility of offering preference shares to the government in a bid to restructure its capital base, unlock shareholders value and enhance earnings per share.

At a later stage restructuring would also help comply with Basel II norms, and capital requirement as business grows. This would be followed by another round of public issue to set the balance of Tier-I and Tier-II at the bank right.

Meanwhile, Uco has targeted a Rs one lakh crore business in 2005-06.

"This will also help the bank jack up its earning per share (EPS) and provide better shareholder value," said V Sridar, chairman and managing director at Uco Bank.

The bank has also entered into talks with merchant bankers like Morgan Stanley and Merrrill Lynch for finalising the package which would be effected in the third quarter of the current fiscal.

Sridar said that the bank was working on a package that would be placed before the board and subsequently to the government.

"A large capital base at Rs 799 crore and a minimal reserve has been acting a deterrent against a rising earning per share and unlocking shareholders value. The bank's reserves have declined to a minimal following adjustment of accumulated losses against reserves," he explained.

The problem could be solved if government would have bought back the shares of the bank, but it declined. However, now that it has allowed issue of preference shares, Uco is considering the possibility of jacking up its EPS through this route.

"The broad outline would be to offer preference shares to the government, but it will also have to make sure that its capital adequacy ratio does not decline below 9 per cent in any quarter. Factors like Tier-I capital rising greater than Tier-II, and government's holding remaining above 51 per cent will also have to be considered," explained B K Dutta, executive director Uco Bank.

"Allotment of preference shares and issue of second public issue would have to be done in any single quarter to take care of all these problems," officials said.

The quantum of the offer to the government as well as the amount of fund to be raised through a public issue are being worked out.

At present Uco Bank's share capital which stands at Rs 799 crore consists of Rs 200 crore raised from the public. The idea would be to offer some portion of the government's capital at Rs 599 crore through preference shares which would then be followed by a public issue that will bring in additional capital as well as premium to the bank.

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Net down20 %

Uco Bank today registered a 20 per cent decline in net profit to Rs 346 crore for 2004-05 against Rs 435 crore in the previous fiscal.

Decline in profit was mainly due to a fall in treasury profits which almost halved from Rs 351 crore in the previous fiscal to Rs 192 crore in 2004-05.

A 29 per cent increased provisions for 2004-05 at Rs 472 crore against Rs 364 crore in the pervious year contributed to the decline.

The bank's operating profit however increased a marginal 2.5 per cent to Rs 819 crore against Rs 1,000 crore targeted for the fiscal. Last year the bank registered a total operating profit of Rs 799 crore in the previous fiscal.