Rs 1,366-crore sale will help the bank meet new promoter shareholding norm.

Kotak Mahindra Bank will sell 4.5 per cent equity to Sumitomo Mitsui Banking Corp for Rs 1,366 crore, a move that will help the bank boost its capital adequacy and meet a Reserve Bank of India requirement on promoter shareholding.The two banks have also signed a cooperation agreement to tap Japan’s large savings to fund India’s growing hunger for resources.

Under the stake-sale deal, which is subject to approvals, Sumitomo, Japan’s second-biggest banking group, will buy 16.4 million fresh shares to be issued by Kotak Mahindra Bank at Rs 833 a share compared with Monday’s closing price of Rs 744.55 on the National Stock Exchange.

Uday KotakKotak Mahindra gained as much as 4 per cent on the Bombay Stock Exchange on Wednesday. Sumitomo Mitsui shares fell 1.4 per cent in Tokyo.

The share sale would lower the stake of original promoters of Kotak Mahindra Bank to about 49 per cent, from about 51 per cent, on an expanded equity base, Kotak Mahindra Bank said in a statement on Wednesday.

“Japan has significant surplus capital and India is growing and hungry for savings. It’s time we built new corridors,’’ said Uday Kotak, executive vice-chairman and managing director of the bank. “Nowhere else in the world is such an opportunity for growth available as it is in India.’’

Kotak will help Indian companies raise debt and equity overseas. Under the agreement, the two groups will co-operate in opportunities arising from cross-border business, investment and trade flows. The pact would cover infrastructure finance, external commercial borrowings, investment banking, asset management and alternative assets.

The capital infusion from the Japanese group is likely to be completed by August after the bank takes approval from its shareholders at an extraordinary general meeting on July 27 and gets an approval from the Reserve Bank of India, according to T V Raghunath, head of group strategy at Kotak Mahindra Bank.

The capital infusion would lift the Mumbai-based bank’s capital adequacy to more than 20 per cent from 19.3 per cent in March and help it finance opportunities for “organic growth and have a war-chest for inorganic growth”, Kotak told reporters. He said there was no plan to offer more shares to Sumitomo Mitsui at present. Sumitomo will not get a seat on the bank’s board. The transaction would add Rs 30 to Kotak Mahindra Bank’s book value, he said.

Kotak Mahindra Bank aimed to use the capital infusion to fund growth, Kotak said. The bank was likely to grow between 25 per cent and 30 per cent in the year to March, he said. It has no plan to dilute or divest any stake to raise funds.

Kotak plans to increase the number of branches to 320 by March and 500 by December 2012, from about 260 at present.

Japanese banks can fund India’s infrastructure as the country needs to double its spending on roads, ports and power to almost $1 trillion in five years to 2017 to grow 10 per cent, according to Prime Minister Manmohan Singh. Japan’s $4.9-trillion economy, the second-largest in the world after the $14-trillion US economy, has interest rates close to zero. The fastest its economy grew between 1999 and 2009 was 2.6 per cent. Lending by banks there has been declining.

Kotak Mahindra Bank operates a commercial bank, an asset management company, real estate funds, and is present in life insurance, investment banking, securities trading and private equity. It planned to retain all its units under Kotak Mahindra Bank and had no plan to sell stakes in any of the arms, he said.

(Kotak Mahindra Bank is the principal shareholder in Business Standard Limited)

source: Business-Standard

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