United Bank of India, UBI may choose to put its proposed initial public offer, IPO on the backburner if its present equity capital is not comfortably restructured. The government has asked the bank to “revisit” the plan to converting Rs 1,200 crore into preference capital to keep it in line with the Reserve Bank of India’s proposed guidelines in this regard, reports DNA.
PK Gupta, chairman and managing director, UBI, said: “The finance ministry has sought our views on this and we are re-examining the issue at present. We are already adequately capitalised for the next four to five years”.
UBI had approached the ministry to allow this reduction in equity and conversion of this amount into preference shares.
While conversion into preference shares was the preferred choice, a second option was to ask the government to invest up to Rs 295 crore in innovative perpetual debt instruments and convert the rest into preference capital.
All these proposals from the bank were geared to make its ratios such as the earning per share, PE ratio more attractive for its capital market plans. UBI’s present equity capital restricts it from getting an attractive pricing once it decides to hit the market with its IPO, which it was planning some time next year.
With the RBI considering placing a cap of 40% of equity capital for issue of preference capital, UBI’s case for conversion does not quite conform to this. The amount put forward for conversion happens to be over 75% of the Tier 1 capital.
While the bank may choose to bring the amount down to 40%, banking sources indicated that the purpose of conversion might not hold good for UBI. The bank’s capital adequacy ratio is slightly above 12% at present and it has recently raised Rs 200 crore of Tier 2 capital. UBI aims to grow its business by 21% to Rs 54,000 crore from Rs 46,304 crore at present.
The bank had targeted a 27% growth in credit, of which it has achieved about 16% in the half year.
Spruce-up
United Bank wants to reduce its equity so that its earnings per share and PE ratio become more attractive for its capital market plans
Its present equity capital restricts it from getting an attractive pricing once it decides to hit the market with its IPO.
The bank was planning to launch its IPO some time next year.