SBI investors to get shares at 36% discount in rights issue

MUMBAI: The board of State Bank of India (SBI) on Monday cleared the proposal to raise capital through a rights issue in the ratio of 1:5. The rights issue will be at a steep discount of 36% over Monday's price. SBI has pegged the rights issue at Rs 1,590 (which includes a face value of Rs 10) and for every five shares the shareholder will get the right to subscribe to one share.

SBI will raise Rs 16,736.31 crore though the rights issue, which will be the largest public offering in India. This will also be the first rights issue by a government-owned bank. The government will subscribe Rs 10,000 crore to retain its shareholding of 59.73% in the country's largest bank in terms of assets. The price is based on SEBI formula on six-monthly average.

Senior SBI officials said the bank is working towards raising the capital in this fiscal year itself. On Monday, shares of SBI closed at Rs 2,462 up by 1% over previous close of Rs 2,437. The board also cleared the proposal to issue employee stock purchase scheme. The bank will work on the modalities of the issuing the employees shares said SBI officials.

Following the issuance of shares, SBI's capital will increase from Rs 526.3 crore to Rs 630 crore. The bank has an equity base of 52.62 crore shares and post the rights issue another 10.52 crore shares will be added. This will help in improve the liquidity and volumes of SBI shares in the market.

SBI has been working on the rights issue in the last six months as they have already appointed merchant bankers and registrar for it. Sources said SBI has already received informal approval from SEBI on making some special relaxation for its rights issue such reducing the notice period and the minimum number of shares that investors needs to hold for rights issue.

Last week, senior bank officials met the finance ministry to work out the modalities of the issues. The government issue bonds to SBI in various maturities to negate the budgetary impact of subscribing to SBI shares.

Last Friday, government has issued letter to SBI approving its rights issue.

The rights issue, which will increase the bank's capital base by 20%, will close the gap between the market capitalisation of State Bank of India and ICICI Bank. Going by current market price of Rs 2,462 of SBI the bank has a market cap of Rs 1,29,588 crore while ICICI Bank is at Rs 1,56,715 crore.