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SBI to hire merchant banker for sale of non-core assets

LiveMint logoLiveMint 20-09-2017 Alekh Archana

Mumbai: The State Bank of India (SBI) has started the process for selling some of its investments which are not critical to its core business in an attempt to shore up its capital base, two people aware of the development said.

SBI has stakes in stock exchanges, depositories, clearing and warehousing corporations, and credit rating agencies. As a first step, the bank plans to hire a merchant banker to assist in the process.

In June, SBI raised Rs15,000 crore through a qualified institutional placement (QIP or sales to financial institutions), nudging up its capital adequacy ratio (a measure that looks at a bank’s capital in proportion to its loans, accounting for risk) to 13.31% as on 30 June, from 12.85% as on 1 April.

“Once a merchant banker is on board, we will look at which assets we can monetize, whether fully or partially. Since these are not fire sales, we want to have some kind of a timetable. From November, we should be able to go to the market,” said the first person, an SBI executive, on condition of anonymity.

In the past, SBI executives have said that monetizing non-core assets was one possible way of raising capital. This is in line with the government’s thinking that banks should sell non-core investments to improve capital adequacy ratio. A spokesperson for SBI said that as mentioned by the bank’s chairman Arundhati Bhattacharya “on various platforms”, SBI would exit, wholly or partially, its investments in “non-core assets”. “There is a plan in place and we would do the transaction at an appropriate time. However we would not like to comment on an individual company or transaction,” the spokesperson added.

SBI is divesting 8% in joint venture SBI Life Insurance Co. Ltd’s initial public offering (IPO), which opened for subscription on Wednesday.

The lender has sought bids from merchant bankers who will help it identify interested parties to buy stakes in the identified strategic investments, a tender on the bank’s website said. While the names of these assets were not disclosed in the tender, SBI stated that it had invested in stock exchanges, depositories, clearing and warehousing corporations, and credit rating agencies.

“A number of such strategic investments have been made at the time of formation of these investee companies to help them raise capital and credibility required at the initial stage,” it said.

SBI held 5.19% in the National Stock Exchange Ltd and 3.52% in Metropolitan Stock Exchange of India Ltd at the end of June. In July 2016, SBI sold a 5% shareholding in NSE for Rs911 crore.

SBI is also a shareholder in Smera Ratings Ltd, which is promoted by the Small Industries Development Bank of India.

The country’s largest lender also holds 21.20% in Clearing Corp. of India Ltd (CCIL), according to the latter’s fiscal 2017 annual report. Recently, IDBI Bank sold 2.5% stake in CCIL, a clearing and settlement platform, for an undisclosed amount. 

While SBI is not keen on exiting its investment in Asset Reconstruction Company (India) Ltd and SBI Global Factors Ltd at this point of time, the stake sale in UTI Asset Management Co. Ltd will be contingent on the listing plans of the fund house, the second person said on condition of anonymity. SBI holds over 18% in UTI AMC. 

UTI AMC is almost ready for an IPO, as per its managing director Leo Puri, Press Trust of India reported on 13 July. 

According to Udit Kariwala, senior analyst at India Ratings, while the current capital base of SBI is fairly adequate, the bank requires capital as it is poised to grow and also to meet provisioning requirements as some of its loans age.

“Since SBI has already done QIP and it may not go for another round of fundraising this year which may dilute government’s stake. Hence, sale of non-core assets is a viable option,” he added.

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