Dhanlaxmi revives $36.5M fund raising plan

Dhanlaxmi Bank plans to raise growth capital by floating nearly 8.5 million shares, which amounts to a dilution of 9 per cent stake in the private sector lender. The bank is expecting to raise up to Rs 200 crore ($36.5 million) through the issue, according to a statement.

“There is a demand in the market and we are exploring both existing as well as new PE participation,” said a banker to the issue. He added that issuance will be purely equity based.

The bank’s board has approved the allotment of 8.5 million equity shares of Rs 10 each at a premium of Rs 50 aggregating to an amount of Rs 51 crore through preferential allotment, within the overall cap of Rs 200 crore.

In the preferential allotment, Non-resident Indian BK Raveendran Pillai and the other domestic investors including Mohanachandran Nair, Sunil Kumar P, Sasi Kumar P, Sree Kumar P and RS Dinesh Chandran would participate

The capital requirement of Indian banks would accelerate as Basel III kicks in on April 1 this year. A S&P report pegs that the Indian banking industry would have a $ 3 billion- $ 4 billion shortfall in capital if it immediately tried to attain an 8 per cent common equity Tier 1 ratio to comply with Basel III guidelines.

The equity infusion would be a test of market’s confidence on the bank, as the old sector private lender is widely seen as a fundamentally weak bank for acquisition in the new banking license regime.

In 2011, the bank failed to see through a proposed Rs 290 crore funding from Mount Kellet Capital, Wolfensohn Capital, Multiples PE and Jay Sidhu’s Customers Bancorp.

In the same 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 took a hit.

The bank, with a CAR of 10.7 per cent, has one of the lowest Tier I capital among the private lenders at present.

The bank has been exploring to raise the equity stake for some time. In June 2012, 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 its Tier II capital ratio. But according to the bank, the plan was postponed.

The company’s share is trading at less than half of what it was a year ago. Dhanlaxmi Bank’s scrip rose 0.09 per cent to close at Rs 52.9 a share on the Bombay Stock Exchange in a weak Mumbai market on Monday.

(Edited by Prem Udayabhanu)

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