MUMBAI: The US-based private equity firm Blackstone is set to acquire nearly 10% stake in Federal Bank for Rs 6,196.5 crore. The Kerala-based bank’s board approved the proposal on Friday, it now requires shareholder and regulatory clearances, including from RBI and Competition Commission of India. This is the latest instance where an Indian lender has tapped private capital through a large-ticket deal this year. The deal activity has driven debate on whether RBI is taking a more liberal view of foreign strategic ownership in banks.
Blackstone-Federal Bank deal
“This is indeed a very wise and pragmatic move as it serves dual purpose for RBI: get patient, long-term foreign capital from credible sources and strengthen further the banking system as the guys coming in are with deep pockets. Large-scale investments are needed in tech, compliance,” said Suresh Ganpathy of Macquarie.Last week, RBL Bank secured a Rs 26,853-crore commitment from the UAE’s Emirates NBD for up to a 60% stake. Earlier this year, IDFC First Bank raised Rs 7,500 crore from Warburg Pincus and Rs 2,624 crore from Abu Dhabi Investment Authority. Yes Bank saw Japan’s Sumitomo Mitsui Banking Corporation acquire up to a 24.2% stake for about Rs 15,000 crore, while Utkarsh Small Finance Bank completed a rights issue subscribed by institutional buyers, including Madhu Kela’s investment trust. Even earlier, DBS had acquired control of Lakshmi Vilas Bank.The investment in Federal Bank will be routed through Asia II Topco XIII, a Blackstone-controlled entity used for its India strategic deals. The bank plans to issue up to 27.3 crore warrants to the investor via private placement. Each warrant will convert into one equity share of face value Rs 2 at an issue price of Rs 227 (Rs 225 premium). The investor will pay 25% upfront and the balance at conversion. Warrants must be exercised within 18 months, after which any unconverted warrants will lapse with no refund.If converted holdings cross 5%, the investor may nominate one non-executive director, subject to shareholder nod and listing norms. The investor is not part of the promoter group and has no related-party links with the bank.‘Expect More Such Deals’ Macquarie’s Ganpathy expects more such deals among smaller-and-mid-sized banks. ” Any organization which requires a confidence-capital desperately needs to do this in our view. As far as large banks are concerned, considering they are systemically-important institutions – there RBI will tread a more cautious path when it comes to acceding control,” he said.Federal Bank CEO KVS Manian earlier said the fundraising will reinforce capital buffers and support growth across retail, SME and digital businesses, with a continued focus on strong adequacy ratios. The bank plans to seek shareholder approval at an extraordinary general meeting on Nov 19, to be held via video-conference. Shareholders on record as of Nov 12 will be eligible to vote electronically.“The smaller ones and mid-sized ones… need more capital, better tech, better governance, better controls, and better expertise and knowledge to stay, compete with the larger ones… RBI understands this. At the same time, we also need foreign capital… more patient, longer-term capital. Assuming RBI has done its due-diligence and some of these guys are reputed ones, what’s the harm in allowing FDI?” Ganpathy added.
