Kotak Mahindra Bank raises $99.9 million from first-ever GDR sale

Popular name garners strong demand despite faltering stock market.
Signs over the past few trading sessions that the 12,000 index level may prove a bit of a hurdle for the Mumbai stock market to get through are seemingly having little impact on the primary market with Indian financial services company, Kotak Mahindra Bank able to raise $99.9 million from its first ever Global Depositary Receipts without any trouble over the weekend.

Demand for the shares was very strong with the book four times covered at the top end of the range û where the price was eventually fixed û and five times overall, according to people familiar with the issue. There was a strong showing both from existing investors and long-only funds and the conversion ratio from one-one-one meetings during the four-day roadshow was said to have been high with 32 accounts splitting the allocation.

The offer, which was jointly arranged by Citigroup and Kotak Investment Banking, comprised 15 million GDRs û each accounting for one common share û which were sold at $6.66 apiece. The final price was equal to Rs300 per share and translated into a discount of 5.2% to FridayÆs close of Rs316.4. The GDRs were initially offered to investors in an equivalent range of Rs280 to Rs300 per share.

The discount was fairly modest given that the share price traded up 10% between the announcement of the price range last Wednesday and the fixing of the price early Saturday morning, gaining 5.7% on Friday alone.

Asian investors were said to have taken about 60% of the deal, while 30% went to the US and 10% to Europe. Long-only funds accounted for about 55%, while hedge funds bought the remaining 45%.

The bankÆs strong position in IndiaÆs financial sector was a key buying argument, although the bankÆs visionary vice chairman and managing director, Uday Kotak was also likely to have helped attract investors.

ôUday Kotak has a huge following in India and lots of people buy into what he says,ö one observer notes. ôHe has a track record of delivering what he promises.ö

The bankÆs strong growth in recent years has translated into a healthy share price performance with the stock up 342% over the past 18 months. It did fall back 3.9% on the first day after pricing, but was up 0.7% to Rs306.35 yesterday (April 25) in an otherwise declining market.

India's Sensex index dropped 2.25% yesterday to 11,646.78 points and has now lost 3.3% over the past three trading sessions.

There will be modest dilution from the Kotak Mahindra's share sale as the new shares accounted for only 4.8% of the existing share capital.

The GDR sale comes after Kotak Mahindra last month bought out its minority partner Goldman Sachs from their joint investment banking and securities ventures, which left the bank free to charter its own course as it continues its aggressive expansion in IndiaÆs financial markets.

No specifics in that regard were announced during the roadshow, however, and the proceeds from the sale will be used to enhance the bankÆs capital adequacy ratio and for other general corporate purposes.

Earlier this month, Uday Kotak told local media that the bank is open to acquisitions in order to further expand its business.

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