Why Bajaj Finance changed funding route in RBL Bank2 min read . Updated: 10 Dec 2019, 11:13 PM IST
- Firm chose to subscribe to shares via QIP instead of the preferential allotment route
- Sebi’s norms on preferential allotment of shares would make Bajaj Finance ineligible
MUMBAI : Last week, Bajaj Finance Ltd, one of India’s largest non-bank lenders, made a ₹150 crore investment in RBL Bank Ltd through a qualified institutional placement (QIP). That, however, wasn’t its intended investment route.
On 30 November, RBL Bank informed the stock exchanges of plans to raise around ₹825 crore through a preferential allotment of shares to a bunch of investors, including Bajaj Finance.
Bajaj Finance, according to the exchange notification, was supposed to subscribe to 4.4 million shares at ₹340.7 apiece.
The proposed preferential allotment would have closed only after approval from the bank’s shareholders at the extraordinary general meeting (EGM), scheduled for 27 December.
A 3 December notice to shareholders, informing them about the EGM, however, did not list Bajaj Finance as one of the preferential allotment investors.
That is because between Saturday, 30 November, and Tuesday, 3 December, Bajaj Finance changed its plans to invest in the bank from the preferential allotment route to subscribing to shares through the QIP, which opened for subscription on 2 December.
The change of plan was prompted by the Securities and Exchange Board of India’s (Sebi) norms on preferential allotment, which would have made Bajaj Finance ineligible for participation, according to two people aware of the developments.
“Sebi states that for strategic investors, such as Bajaj Finance, to be eligible for participation in a preferential allotment of shares, they should not have sold shares of the issuer company in the previous six months," said one of the persons mentioned above, on condition of anonymity. Bajaj Finance, through its various lending products such as loan against shares (LAS) was holding RBL Bank shares as pledge, the person said.
“When some of these loans saw defaults, Bajaj Finance invoked these pledges and sold the RBL Bank shares it was holding. This inadvertently made Bajaj Finance ineligible to participate in the proposed preferential allotment by RBL," he said.
For RBL Bank, this was a crucial fundraising exercise as rising bad loans and provisions have hit its profit as well as stock price. Stocks tanked from a 52-week high of ₹716.40 on NSE in May to a 52-week low of ₹230.55 in October. At such a time, a technical glitch rendering Bajaj ineligible would have impacted investor sentiment. In the quarter ended 30 September, the bank saw its gross non-performing loans jump 95% to ₹1,539 crore. As a percentage of total loans, its gross bad loans ratio nearly doubled to 2.6% from 1.38% during the period while profit fell 73% to ₹54 crore.
Interestingly, Bajaj Finance seems to have stumbled upon this roadblock only after a public announcement of its intention to participate in the bank’s preferential allotment of shares.
On Friday, RBL Bank announced that it had successfully raised ₹2,025 crore through its QIP offering by selling shares to institutional investors such as mutual funds, insurance companies and foreign institutional investors.
Bajaj Finance subscribed to 4.27 million shares at ₹351 apiece, aggregating to ₹150 crore in the QIP, according to filings to stock exchanges.
Apart from Bajaj Finance, other investors that participated in the QIP included a fund managed by BNP Paribas, Aditya Birla Sun Life Mutual Fund, Credit Suisse (Singapore) Ltd, and funds managed by Nippon India Mutual Fund.
Investors that are participating in RBL Bank’s preferential allotment include East Bridge Capital Master Fund I and FEG Mauritius FPI Ltd, along with Ward Ferry Management Ltd-managed hedge fund WF Asian Reconnaissance Fund and Asia-focused stock hedge fund, lshana Capital.
Emails sent to Bajaj Finance remained unanswered till the time of going to press.