SBI rights at a 35% discount

MUMBAI: State Bank of India, the public sector banking giant, has priced its rights issue at a 35% discount to its closing price on Friday.

The bank, 59.73% government-owned, will raise Rs 16,736 crore by offering one share for every five held at Rs 1,590 apiece, a discount to its Rs 2,437.25 stock price on January 11. The cut-off date for the issue is February 4.

The discount should act as an extra incentive for investors of the bank which has seen its stock price soar 101% in the last one year — from Rs 1,222 to Rs 2,462 currently. The stock closed at Rs 2,462.25 on Monday.

Sources said the bank plans to sell over 10 crore shares, of which 86 lakh will be reserved for employees holding shares of the bank, the first such instance among public sector banks.

Officials said the price of the issue was arrived at using the one-year average, which came to Rs 1,533 per share.

Ananda Bhoumik, senior director, banking, Fitch Ratings, said the discount looks fair considering the stock’s movement in the last one year. “From a management point of view, it’s a fair rational given that they would have had to do the rights issue at less than a Rs 1,000 per share if they would have done it 12 months ago,” Bhoumik said.

The bank’s capital will grow to Rs 650 crore from the existing Rs 526.30 crore.

Analysts said a lower discount could possibly allow the bank to raise more money, but the discount will ensure that the issue will “cruise through”.

“Getting subscription shouldn’t be a big effort for the bank as it offers good value as India’s biggest,” said Binay Chandgothia, who oversees $2 billion of assets at Principal Asset Management Asia in Hong Kong.

“The discount is a positive surprise and the rights will get subscribed from investors across segments.”
Banking stocks have been the flavour of the bull run in the local stock market with the 18-member Bankex index rising 70% in the past year.

Of the Rs 16,736 crore the bank will raise through the issue, the government will buy Rs 10,000 crore worth of shares by issuing securities of similar value. Annual cost of servicing these bonds would come at around Rs 790 crore, finance minister P Chidambaram has said. (with agency inputs)

r_joel@dnaindia.net