Dhanlaxmi Bank has taken an in-principle decision to raise Rs 200 crore or $38 million through fresh issue of shares in a move that revives its proposed funding of a larger amount which came unstuck last year. The decision for fresh issue of shares was taken in its board meeting held on September 27, 2012.
“The board has given us a resolution to raise money and we would be taking a call on the mode of funding next week. We will meet the board again to follow up on this,” MD and CEO PG Jayakumar told VCCircle.
But according to sources, the bank is looking for PE funding.
Jayakumar took over the reins of the public listed bank in May this year after Amitabh Chaturvedi, who was responsible for aggressively scaling up the bank’s network and increasing the balance sheet size since he assumed charge in 2008, put in his papers in February this year. Before joining Dhanlaxmi, Chaturvedi had worked as head of retail operations at ICICI Bank and also as the group president of Reliance Capital.
Last year, the bank’s shares came under heavy drubbing after an industry union alleged irregularities in its accounts, a charge denied by the bank. The bank’s provisioning, capital adequacy ratio (CAR) and asset-liability mismatch also came into limelight.
As on June 2012, the bank had a CAR of 10.36 per cent. However, it has not given the break on Tier I and Tier II classification. In the same month, the bank decided to raise money through private placement of unsecured and subordinated bonds to mop up Rs 200 crore, including the option to retain oversubscription of up to Rs 100 crore. The money was supposed to have increased their Tier II capital ratio. But according to the bank, the plan was postponed.
Tier II capital is secondary bank capital that includes undisclosed reserves, general loss reserves, subordinated term debt and more. Indian banks are currently required to have a CAR of at least 9 per cent.
This would be the second attempt by Dhanlaxmi Bank at capital raising. Last year, its proposed funding to raise Rs 290 crore by selling around 19.6 per cent stake did not materialise after the investors withdrew from the preferential allotment.
The Thrissur-based private bank said that Customers Bancorp would not be able to participate in the issue because of “certain regulatory reasons applicable in the jurisdiction of its incorporation.” Because of this, “other proposed investors have also expressed their reservations in subscribing to the preferential issue.”
Customers Bancorp, led by Jay Sidhu – the US-based banker of Indian origin – is headquartered in Phoenixville, Pennsylvania, with assets of more than $1.6 billion. Other private equity investors in last year’s proposed issue included Mount Kellet Capital (a private equity firm run by former Goldman Sachs partner Mark McGoldrick), Wolfensohn Capital Partners (an equity fund promoted by former World Bank chief James Wolfensohn) and Multiples, a private equity firm started by former ICICI Ventures’ chief Renuka Ramnath.
The company’s share is trading at a fraction of what it was a year ago. Dhanlaxmi Bank’s scrip rose 0.45 per cent to close at Rs 55.7 a share on the BSE in a strong Mumbai market on Friday. Last year, the proposed preferential issue was to be made at Rs 140 a share.
At the current market price, the Rs 200 crore issue would lead to equity dilution of as much as 29 per cent. But it is not clear yet if the bank will raise the money at one go.
(Edited by Sanghamitra Mandal)