LIC stake in SBI rises to 10.4%; pays Rs 5,700 cr to pick up 38% in QIP issue

An exterior view of Life Insurance Corporation of India's (LIC) headquarters is seen in Mumbai September 18, 2014. LIC Chairman S. K. Roy said he was "very bullish" about the banking, pharmaceutical, metals and IT outsourcing sectors because of expectations for a cyclical recovery and a stabilising rupee currency. Roy added LIC was headed for a "very good year", both in terms of its market investments and its core insurance business. The chairman said he expected growth of 12 percent in insurance premiums this fiscal year, in line with 13.4 percent last year. REUTERS/Danish Siddiqui (INDIA - Tags: BUSINESS) - RTR46PN8

Life Insurance Corporation (LIC), country’s largest insurance company picked up 38 percent shares in this year’s largest equity issuance by country’s largest lender State Bank of India (SBI) on Thursday.

This increased LIC’s stake in the government-owned bank from 8.64 percent to 10.4 percent.

SBI closed the qualified institutional placement (QIP) on Thursday to raise Rs 15,000 crore. The issue had opened on June 5.

Chairman Arundhati Bhattacharya in a media briefing said, “We did not give LIC the full sum they asked for but 77 percent of what they asked, which is 38 percent of the total QIP.”

The 38 percent amounts to about Rs 5,700 crore that LIC would have paid for the stake.

Excluding LIC, 25 percent shares were taken by DIIs (domestic institutional investors), 26 percent by foreign institutional investors (FIIs) and 11 percent by high quality FII hedge funds.

DIIs, FIIs, sovereign wealth funds and many investors are who have never invested in India and most are those who have never invested in a public sector institution earlier have participated in the issue, Bhattacharya added.

The QIP book was oversubscribed and demand exceeded Rs 27,000 crore (Rs 11,000 crore demand from FIIs and Rs 8,000 crore from DIIs)

SBI issued 52.2 crore new equity shares at a price of Rs 287.25 per share, “priced at zero discount on the back of 43 percent stock rally in the last one year”.

The lender had originally planned to sell 54.4 crore shares in a price range of Rs 275.76-287.25 per share.

Capital

The SBI chief said that the QIP was undertaken to support growth because “we think that growth is around the corner”.

Next year we have estimated a growth of 14 percent i.e. for 2018-19 and this year for 2017-18 it is likely to be at 10-12 percent, she said adding that SBI will not raise any other capital in this fiscal year, nor will require any capital from the government.

Typically, the government allocates SBI largest amount of the intended capital infusion, which is at Rs 10,000 crore for this year.

However, starved on capital injection in over 20 public sector banks, where the government has controlling stake, this may come as a breather for the Government and other banks in need of capital.

Moody's Investors Service said on Thursday said that the 11 Indian state-run banks it rates, including SBI, could need capital in the range of Rs 70,000 Rs 95000 crore (USD 10.6 - 14.8 billion) by March 2019, far more than the Rs 20,000 crore planned in the two years’ time till 2019.

SBI said it will also look at divesting some stake in its non-core assets to increase capital. Last year, the bank raised Rs 2,700 crore through sale of such assets as against a target of Rs 3,000 crore.

Without giving a target, this year, the bank aims to list its life insurance subsidiary by divesting 8 percent stake in the firm. Going forward, it may look at selling stake in companies such as NSE (if it gets listed), CCIL and UTI mutual funds, among other assets.