Mumbai: State-run Special Undertaking of UTI, or Suuti, on Friday hired the investment banking units of JPMorgan Chase and Co., Citibank NA and ICICI Securities Ltd to advise it on the sale of a 21% stake in Axis Bank Ltd, India’s third largest private sector lender. The stake is worth more than Rs5,400 crore at current market price.
Suuti was created in 2002 to take over the assured return investment plans of Unit Trust of India (UTI) after the government bailed out the then ailing mutual fund, the country’s oldest. UTI’s stake in Axis Bank, formerly known as UTI Bank Ltd, was transferred to Suuti.
Axis Bank shares owned by Suuti will be sold in block deals to institutional investors on local bourses over the next two months, a Suuti executive said, asking not to be named.
Suuti owns 27% of Axis Bank, of which 6% has to remain with it because of a lock-in clause.
A senior investment banker at one of the three firms selected by Suuti said his unit expects to sell the shares at a premium to market price. The share sale could be at a pre-negotiated price to pre-determined buyers, though the date of disposal would depend on market conditions, said the banker who didn’t want to be named.
Axis Bank’s stock price gained nearly 8% on the Bombay Stock Exchange (BSE) on Friday to Rs723.30, while the benchmark Sensex rose 3.67%, to 14,564.53. Axis Bank shares have lost about 25% of their value this year and the bank is currently capitalized at Rs25,935 crore. The benchmark Sensitive Index of the BSE has fallen 28% this year.
The Suuti executive said the stakes owned by Suuti in two other large firms—Larsen and Toubro Ltd, or L&T, and ITC Ltd—will not be sold in the short-term. “We are yet to decide about the stake in L&T and ITC,” he said.
The mandate to advise on the sale was given to the three firms after the evaluation of proposals by more than a dozen foreign and local investment banks. The head of advisory services at a large foreign bank operating in India, who did not wish to be named, said the sheer size of the deal drove interest from many investment banks. “It is an important mandate in the current market context.”
Some of the bankers who had presented their proposals to Suuti for this deal, but failed to clinch the mandate, had earlier told Mint that the fees quoted by most investment banks were relatively inexpensive—just a few basis points, unlike hefty percentage fees quoted to private clients. One basis point is one-hundredth of a percentage point.
This is a common trend in government deals, some of the bankers said. Deals clinched from government-run entities find their way to the covers of elegant brochures presented by investment bankers to prospective clients in the private sector.
Another state-run entity, Life Insurance Corp. of India, is the second biggest shareholder in Axis Bank with a 10.3% stake. An investment arm of HSBC Holdings Plc., foreign institutional investor Orient Global Tamarind Mauritius Ltd, and ICICI Prudential Life Insurance Co. Ltd are large shareholders in the bank with more than 4% each. Other shareholders include arms of CLSA Asia-Pacific Markets, JPMorgan Chase and Citigroup Inc.
Meanwhile, Union finance minister P. Chidambaram said on Friday that UTI Asset Management Co. may seek a strategic partner. UTI Asset Management cancelled plans earlier this year to sell shares after the benchmark Sensex index posted its worst first-half on record.
Archana Chaudhary of Bloomberg contributed to this story.