UTI Bank shareholders okay $1 billion float

UTI Bank today received shareholders' approval to raise over Rs 4,000 crore ($1 billion) capital.

The bank had deferred its plans to raise capital through a GDR issue as the promoters "" The Specified Undertaking of Unit Trust of India (SUUTI) and Life Insurance Corporation (LIC) "" had asked for more time to take a view on the capital-raising plan. SUUTI owns 27.43 per cent of the small-sized bank, while LIC holds 10.38 per cent.

The shareholders, at an extraordinary general meeting here, ratified the bank board's decision to sell over 2.82 crore shares through a qualified institutional placement and another over 1.41 crore shares through a global depository receipts (GDR) issue.

The capital raised by way of QIP and GDR would be in a ratio of 2:1. The bank earlier planned to raise the entire amount by selling GDRs, to be listed on the London Stock Exchange and the QIP on the domestic exchange. The fresh capital raising will lead to 15 per cent dilution in existing shareholding.

"We need to raise capital to fund the bank's domestic and overseas growth plans and adhere to the Basel II guidelines. We would like to raise equity through a route that provides the bank capital at a higher price. The board debated on a composite structure which includes a combination of wholesale and retail issue (FPO and rights issue) or only a wholesale issue. We found that the best price discovery happens when capital is raised through an wholesale issue,'' said P J Nayak, chairman and managing director, at the EGM.

''It is in the interest of the existing shareholders that the bank raises capital at a higher price. From a corporate governance point of view we should create value for the existing shareholders. Hence, we decided to raise capital through a whole sale issue which includes a follow on GDR and QIP. There is a very large section of Indian investors who are interested in this issue,'' added Nayak.

Banking sources, indicate that the GDR could be priced in the range of Rs 635 to Rs 640. The UTI Bank scrip at the Bombay Stock Exchange ended the day at Rs 641.

Additionally, UTI Bank will also issue 3.19 crore shares to existing promoters which will enable them to maintain their current holding in the bank.

The base price for the preferential offer has been set at Rs 575.75 a share. The bank will offer 2.03 crore shares to SUUTI, 76,88,045 shares to LIC, 17,51,219 to General Insurance Corporation of India, 7,88,736 to New Indian Assurance Company Ltd, 3,15,268 shares will be offered Oriental Insurance Company Ltd, 3,51,515 shares to United India Insurance Company Ltd and 7,15,198 shares to National Insurance Company Ltd. SUUTI and LIC have agreed to subscribe to the preferential offer.

"The preferential offer, GDR and QIP will be settled simultaneously. We will use the book building process to discover the price for both the QIP and GDR issue. Citigroup Inc. and Goldman Sachs Group Inc. are the lead managers to the issue,'' added Nayak.