Home / Companies / News /  Kotak Mahindra bank to raise 8,000 crore via promoter stake dilution

Mumbai: Private sector lender Kotak Mahindra Bank is planning to raise capital, which will help promoter Uday Kotak lower his stake in the institution and comply with Reserve Bank of India (RBI) regulations.

As plans stand, the bank is planning to sell 4% of its promoter stake, which could be worth at least 8,000 crore.

Two people familiar with the bank’s plan confirmed this, stating that the stake sale will not only help the bank’s founder and CEO Uday Kotak lower his stake to 26% to comply with the RBI norms but also augment the bank’s capital adequacy.

In an exchange filing on Sunday, the bank said its board will hold a meeting on 22 April to approve a plan to raise equity capital through a private placement, follow-on public offering (FPO), or a qualified institutions placement (QIP).

“The bank will sell the stake in 2-3 tranches. The promoter stake has to be brought down to 26% before September 2020. The bank’s capital adequacy ratio is around 18% at present. At the current market price, the stake sale will result in further availability of capital. It will be one of the highest in the industry and more than double of the ratio required under RBI norms," said the first person.

Banks are currently required to maintain a 9% capital adequacy ratio (CAR). CAR is the ratio of a lender’s capital as compared to its risk weighted assets (cash, loans, investments etc.) and current liabilities (taxes, interests, expenses, deposits etc.).

The bank’s latest decision comes two days after rating agency S&P reaffirmed the bank’s rating outlook at BBB-/ Stable. The bank’s stock closed up 4.96% at 1,186.45 apiece on Friday after the rating action.

The positive rating action has made the market conducive for the bank’s promoters to sell stake and comply with RBI’s promoter-holding norms.

In January, Kotak Mahindra Bank and RBI reached an agreement under which the bank promoter Uday Kotak agreed to reduce his stake over a period of time. Under the agreement, the promoter stake has to brought down to 26% by July-August. In the meantime, the promoter's voting rights was reduced in a graded fashion: 20% of the paid-up voting capital till March 31 and 15% from April 1 onwards. The agreement also ended a bitter court battle between the bank and the regulator.

The central bank’s rules mandate that private bank promoters needs to lower their holding to 40% within three years, 20% within 10 years and to 15% within 15 years of obtaining the banking licence. As per the new licensing guidelines, any private bank promoter can hold up to 26% in a bank.

However, in a private bank, the promoter’s voting rights are capped at 15% of the capital, irrespective of the level of his ownership.

Over the past six years, Uday Kotak has been attempting to dilute his stake in the bank in order to comply with the extant norms.

In 2017, the Kotak had sold about 3.3% promoter stake worth about Rs. 8116 crore in two tranches.

In May 2017, the bank had raised 5,803.20 crore by selling 62 million promoter shares at 936 each to institutional investors through a QIP. Earlier, in March 2017, Uday Kotak had sold 28 million shares at 826 apiece to Canadian pension fund manager Caisse de Depot et Placement du Quebec through a block deal. The two transactions had lowered Kotak’s stake from 33.30% to about 30%.

The latest plan is to lower this 30% stake to 26%.

Anirudh Laskar
Anirudh Laskar is a senior editor at Mint, with 17 years of experience. He has reported on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the financial services industry. Based out of Mint’s Mumbai bureau, Anirudh has worked with Business Standard and The Telegraph before joining Mint in 2009.
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