SBI’s share sale draws bids of Rs 27,000 cr from institutions

It took a little over three years for State Bank of India (SBI) to overwhelm the markets with the sale of its shares to institutional investors (called qualified institutional placement or QIP in banking parlance).

In January 2014, SBI struggled to raise just over Rs 8,000 crore, way below the targeted Rs 9,600 crore, which, many believed, was a bailout by Life Insurance Corporation of India (LIC). Many foreign institutional investors (FIIs) skipped the issue then over difference on pricing and concerns over bad assets.

But three and a half years later, SBI has raised Rs 15,000 crore in India’s largest QIP, a runaway hit by any standard, early this week. The offer was hugely oversubscribed with demand exceeding Rs 27,000 crore and the issue getting priced at Rs 287.25 per share. On Friday, the stock closed nearly flat at Rs 288.50 on the Bombay Stock Exchange.

This time, SBI only allotted 38 per cent its QIP to LIC, though the state-owned insurer had placed bids for 50 per cent. Post the issue, LIC will hold 10.4 per cent stake in SBI.

Arundhati Bhattacharya, chairman, SBI, said, “Exceptionally strong demand came from long-only foreign institutional investors (FIIs), in excess of Rs 11,000 crore, while domestic institutional investors (DIIs) had put in bids worth Rs 8,500 crore.” She added the DII figure excluded the demand from LIC.

“We presented our growth potential with the merger of the subsidiaries, which are jewels in their own right, and the use of technology to catapult expansion. It led to a huge investors’ interest in the QIP. We were adequately capitalised, but decided to raise money to fund our growth requirements for the next one year. We are unlikely to hit the market at least for the next two years,” said the chairman.

“In fact, even without this equity raise, with the kind of earnings that we were expecting we would have still met the regulatory requirements up to FY19, including Basel III requirements. This is over and above that,” she said.

The QIP, which opened on June 5 and closed on June 8, saw some new sovereign funds come into its fold, and existing sovereign fund investors increase their stake. Other investors included pension funds and insurance companies. The total FII exposure in the bank went up to 11.22% post the issue from 9.57%.

The QIP will help SBI fund its growth without seeking any government support for the next one year. SBI’s QIP, third largest equity issuance in the Asia pacific region during the year, saw an overall FII demand in excess of Rs 11,000 crore.

Other public sector banks may be tempted to test the markets after seeing the encouraging response received by the SBI.