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Kotak Bank set to launch $2 billion mega share sale

The qualified institutional placement (QIP) could begin early this week.

Last Updated: May 26, 2020, 09.52 AM IST
Kotak Mahindra Bank agen
“Uday Kotak's share sale may get postponed and will do a launch post the QIP issuance,” said another person.
Mumbai: Kotak Mahindra Bank is set to launch a share sale to institutional investors aimed at raising as much as $2 billion in multiple tranches as the private sector lender looks to dilute the promoter’s shareholding to comply with regulatory norms and raise capital.

The private sector lender will first launch a Rs 7,500 crore institutional share sale this week of fresh equity, said people with knowledge of the matter. Promoter Uday Kotak will then sell about 57 million shares to public investors, a holding valued at about Rs 6,600 crore at current prices. The transaction comes at a time when banks require capital in order to fend off worries about bad loans escalating in the wake of the Covid-19 pandemic.

The qualified institutional placement (QIP) could begin early this week, said people with knowledge of the matter.

“We are considering its launch within a day or two as we are experiencing positive investor response,” said one of the persons involved in the exercise. The arrangers have been conducting road shows in the past few days.

“Uday Kotak's share sale may get postponed and will do a launch post the QIP issuance,” said another person.

Kotak Mahindra Capital, Goldman Sachs, SBI Capital Market and Morgan Stanley are managing the share sale, sources said. Individual book arrangers could not be contacted immediately for comment. Kotak Mahindra Bank did not immediately reply to ET's queries sent on Monday evening.

Kotak Mahindra Bank announced in April that the board had approved a proposal to sell 65 million new shares through a QIP or follow-on public offering (FPO). Shareholders approved the plan by online ballot on Monday.

“Pricing may be at the most 2-3% discount to current market price,” said a senior executive with knowledge of the matter. Kotak Mahindra Bank closed at Rs 1,165 on Friday, up 1.3%, for a market value of Rs 2.23 lakh crore.
The share sale is intended mainly to dilute promoter Uday Kotak’s equity holding in the bank to comply with RBI regulations. On February 18, the RBI had given a six-month timeline to bring it down to 26%. He held a 29.92% stake on March 31. The QIP issuance is expected to lead to dilution of around 3.4% of the bank’s equity and lower Uday Kotak’s shareholding to 28.94%. The sale of 57 million shares will lower this further to 26%.

“Kotak Bank remains best placed across metrics, in our view, with a best-in-class liability franchise, prudent underwriting, strong capital position, adequate margin levers (100bp higher SA rate vs peers despite recent cut), and strong currency to explore inorganic opportunities,” Nomura analysts Amit Nanavati and Tanuj Kyal wrote on May 14.

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