Few takers for share sale offers by public banks

Mumbai: State owned Punjab National Bank (PNB) and Life Insurance Corp (LIC) contolled IDBI Bank managed less than their targeted amounts through a qualified institutional placement (QIP) despite offering the maximum permissible 5% discount to investors highlighting the challenges that government owned lenders face in raising capital from the market.

PNB managed to raise about Rs 3,800 crore out of its targeted Rs 7,000 crore while IDBI Bank managed to raise about Rs 1,400 crore out of its targeted Rs 2,000 crore in the offer, multiple people familiar with the issue said.

"Both the issues received support from treasuries of public sector banks treasuries especially the large ones like State Bank of India, Bank of Baroda, Canara and Union Bank of India to help it get through. LIC could not invest in IDBI because it already owns majority stake there but it supported the PNB issue big time," said one of the persons cited above.

PNB raised about Rs 3800 crore which included an estimated Rs 1,500 crore from LIC. Other investors in PNB included mid level mutual funds like Sundaram and some hedge funds like Millenium Management Global. PNB was priced at a 5% discount to the Rs 37.35 apiece floor price set by the bank.

Simiarly, IDBI Bank, which is technically under RBI restrictions under the so called prompt corrective action (PCA) framework, too was priced at a 5% discount to the Rs 40.63 per share floor price set by the bank. Both the banks did not respond to a separate emails seeking comment. Sundaram mutual fund as well as some PSU banks were common investors in both the issues. Individual investors could not be immediately reached for comment.

"LIC could not invest in IDBI but PNB itself is said to have invested Rs 300 crore in the share sale. Indian Bank is said to have bet on both the issuances for Rs 100 crore each. Canara Bank and Union Bank of India are among others that have also subscribed to the issuances," said a second person cited above.

ICICI Securties, IIFL Securities, SBI Capital Markets were the bankers to both issues joined by PNB Securities for PNB and IDBI Capital for IDBI Bank among other bankers.

SEBI rules say that for the issue to be sucessfully placed atleast half of the desired amount has to be collected which both banks managed.
"Our base issue was Rs 3500 crore and we wanted to keep whatever came over it. But we got about Rs 3800 crore and the issue has now been closed," said a person involved in the PNB issue.

Both the issues highlight the investor sceptism with regards to public sector banks which are still cleaning up their books even as they try to assess the damage done by the Covid 19 pandemic this fiscal.

Both issues have come even as the government and the RBI have exhorted PSU banks to seek capital from the markets. The government has for the first time in many years not provided for the capitalisation of banks in its annual budget while governor Shaktikanta Das has asked PSU banks to "stand on the strength of their own balance sheet."

PNB and IDBI's QIP follows Canara Bank's similar Rs 2,000 crore fund raise last week in which again, LIC was the largest subscriber to this issue, raising questions about whether other large investors will be keen to put money into the two forthcoming issues if the state-run insurer does not step in.

Post the issue the capital adequacy of both banks will roughly improve by 50 basis points each. One basis point is 0.01 percentage point.