Kotak Mahindra Bank Ltd. On Tuesday launched QIP (Qualified Institutional Placement) shares in a bid to raise Rs 7,000 crore from the market. It will help the bank to meet regulatory compliance and improve its balance sheet. Kotak Bank is one of the top-performing shares in the stock exchange, and after the announcement, its value jumped by 5 percent.
What is a QIP share?
QIP or Qualified Institutional Placement is a specialised financial instrument, approved by SEBI, that allows a business to raise funds through issuing securities to qualified institutional buyers or QIBs.
QIPs are an easy way for listed companies to raise funds through domestic borrowing without submitting legal paperwork to market regulators. Earlier Indian companies used to raise funds f from overseas market to avoid the complications involved in the Indian market. To stop them from doing that, SEBI introduced QIP to allow companies to raise funds in the domestic market without regulatory complications.
Kotak has decided to issue QIP shares at a floor price of 1,147.75 apiece, which is just half a percent lower than Tuesday’s closing price of Rs 1,152.45. SEBI has allowed companies to offer up to 5 percent discount on floor price to investors.
QIP will help Kotak improve its balance sheet and lower promoters’ share
The declaration came as a surprise. Many wondered if it is the right time for such a move. However, Kotak Bank’s decision on this issue is aimed at bolstering its balance sheet to mitigate the disruptions caused by ongoing COVID-19 pandemic.
“We intend to use the net proceeds to augment capital base and strengthen the balance sheet, which would assist our bank to deal with contingencies or financing business opportunities (which may be organic or inorganic), or both, which may arise pursuant to the economic events driven by the outbreak of Covid-19, or otherwise,” Says a draft offer issued by the bank.
After applying 5 percent discount and assuming that all 6.5 crore shares will get sold as announced, the bank will be able to raise around Rs 7,087 crore from the market.
On the other hand, it will also help the bank to reduce its promoters’ share to comply with RBI’s regulations. Uday Kotak on May 13th said that Kotak Bank is looking at various options to reduce promoter shareholding, which is currently at 29.5 percent.
RBI has mandated that private lenders can hold only up to 15 percent share in a bank but agreed to let Kotak promoters keep 26 percent share till August 2020. QIP share announcement will bring down promoter Uday Kotak’s current stake in the bank from 29.9 percent to 26 percent, to meet RBI ceiling.
“Having worked out a truce with the regulator, a QIP was anticipated. But the timing has surprised us. Banks have been under pressure of late, but Kotak remains a class franchise to own. It remains the top quartile franchise. So to that extent, we believe in Kotak’s ability to raise capital. They are already well-capitalised. This allows them to come on the right side of the regulator as well.” Says Krishnan ASV of SBICAP Securities.
Kotak Bank has appointed Goldman Sachs, Morgan Stanley, Kotak Mahindra Capital and SBI Capital Markets as advisors to conclude the deal.