India's Kotak Mahindra Bank has petitioned a court against a central bank rule preventing the company from issuing preference shares to reduce its promoters' ownership stakes, weeks ahead of a deadline for its CEO to trim his own stake in the bank.
Uday Kotak, the billionaire head of Kotak Mahindra, has been asked by India's central bank, the Reserve Bank of India (RBI), to lower his holding in the company to 20 percent by the end of the year, and to 15 percent by March 31, 2020.
He directly held a 29.73 percent stake as of Sept. 30, according to Bombay Stock Exchange data.
Kotak Mahindra filed a writ petition on Monday with the Bombay High Court as it seeks to "validate" its position, the bank said in a statement.
"Given the milestone of Dec. 31, 2018, the bank has been left with no option but to protect its interest," it said.
Kotak Mahindra issued perpetual non-convertible preference shares (PNCPS) in August in a bid to comply with promoter stake rules, but was told by the RBI that that did not meet official requirements.
The bank said it had not heard from the RBI on the matter after clarifying that PNCPS were a part of the paid-up capital of the bank, and also the legal basis on the dilution of shareholding.
"The case against RBI could mean that (Uday) Kotak is not able to sell his stake. So he is buying time," said A.K. Prabhakar, head of research at IDBI Capital.
Current market conditions were not conducive for a stake sale, he added.
Kotak Mahindra shares ended 6.4 percent lower on Monday.
Last week, an Indian media report said billionaire investor Warren Buffett's Berkshire Hathaway Inc was looking to buy a 10 percent stake in Kotak Mahindra, driving shares of the lender 8 percent higher on Friday. Any such deal would help Uday Kotak reduce his holding in the company.
The bank said it was unaware of any such plans by Berkshire.