SBI may pocket Rs 300 cr from NSE stake cut

Jul 04, 2008
Ashish Rukhaiyar
MUMBAI

INDIA’S largest bank State Bank of India (SBI) has decided to sell a part of its holding in the National Stock Exchange (NSE), a move which is expected to fetch over Rs 300 crore for the bank.

SBI, which helped promote the exchange over 15 years ago along with a clutch of Indian financial institutions and banks, has an equity holding of 8.5%. The decision to reduce the holding has been prompted by rules on ownership of exchanges framed by the government. According to these rules, the equity holding of a single entity has been capped at 5%. Shareholders, who control more than 5%, will need to shed a part of their holdings to conform to these norms.

Senior bank officials said that they were hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for the exchange. The bank has appointed its broking subsidiary SBICAP Securities to scout for potential buyers for shares it is putting on the block.

An official, who is privy to the development, said that SBI’s reserve price of Rs 315 crore is benchmarked to an earlier transaction in which the Life Insurance Corporation (LIC) had sold a part of its NSE stake at Rs 3,501 per share in March 2008. Considering that SBI is looking at selling nine lakh NSE shares, the reserve price has been pegged at Rs 315 crore. Meanwhile, in recent months, SBI’s merchant banking wing SBI Capital Markets, too, has reduced its stake in NSE from 5.6% to 4.3%.

The stake sale comes at a time when banks are struggling to boost their profits. Most banks will have to provide for their huge depreciation on the treasury portfolio due to rising yields in government bonds and a slump in the equity market. Analyst say that the sale of NSE shares will help them offset a part of provisions on treasury books.

“If the bank does not receive bids at attractive price, we may be forced to postpone plans to sell the stake right now. As such, the Securities and Exchange Board of India (Sebi) has not set any deadline to lower the stake,” said senior bank officials. Further, SBI will be able to offload its shares in NSE only to domestic institutions as the foreign holding in the exchange has already touched the maximum permissible limit of 26%.

People familiar with the development say that the bank is also open to divesting small chunk of shares to different entities. This, in effect, would lead to another round of sale where various entities would end up with marginal stake in the stock exchange.

Rules governing the ownership of stock exchanges stipulate that any single entity buying more than 1% in any of the stock exchanges, would have to obtain a “fit and proper” certificate from Sebi.

In March 2007, Morgan Stanley (3%), Citigroup (2%) and Actis (1%) collectively bought 6% stake in NSE, when various stakeholders like IDBI, SBI, SBI Capital Markets, Corporation Bank, Union Bank of India and Bank of Baroda sold their share. The first round of stake sale took place in January 2007, when global majors like NYSE, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund (SAIF) bought 5% each.