UTI Bank raises $654 million from follow-on

About 60 investors participate in the combined QIP and GDR offering, while a concurrent preferential share sale allows the bank to reap more than $1 billion in total.
UTI Bank has raised the equivalent of $654 million from its follow-on offering of domestic shares and global depositary receipts (GDRs), as the recapitalisation of the Indian banking sector continues.

Two-thirds of the total, or Rs17.5 billion ($436 million), came from the domestic portion which was sold in the form of a qualified institutional placement (QIP). The GDR sale raised $218.07 million. It was the first time an Indian follow-on offering has been done through a combined a QIP and GDR sale.

Having also completed a concurrent sale to its promoters through a preferred allotment, the private sector lender walks away from this fund raising exercise with a total of $1.05 billion before expenses.

All three legs of the share sale were completed at the same price, which was fixed at Rs620 per share after a five-day roadshow and bookbuild. The price represents a 4.5% discount to last FridayÆs close of the lenderÆs Mumbai-listed shares. The share price did gain a modest 1.2% during the roadshow and reached a new closing high of Rs655 mid-week before finishing at Rs649.20 on the final day. In the wake of the pricing yesterday, the stock fell 3.8% to Rs624.80, however.

The combined offering (excluding the portion sold too its promoters) accounted for 13.6% of the post-issue capital and was arranged by Citi and Goldman Sachs. The deal comprised 28.26 million shares sold through the QIP and 14.13 million GDRs, each of which is equivalent to one domestic share.

The final price translates into $15.43 per GDR, which represents a 1.7% discount to last FridayÆs close of $15.70. The price was set in relation to the Mumbai-listed common shares, however, as the London-listed GDRs are a bit too illiquid to serve as a reference point, sources say.

The less liquid nature of the GDRs also meant that investors who were eligible to buy the QIP preferred to do so. As regulations state a QIP cannot be sold to more than 49 accounts in total, this did take some re-jigging of the orders by the bookrunners. In the end, sources said the GDR attracted orders from just under 30 international names, while the QIP portion was placed with slightly more than 30 different investors, a couple of whom bought shares through multiple accounts.

In absolute terms, the demand for the larger QIP tranche was said to have been slightly greater than for the GDR, but based on the allocations, investors say both tranches appear to have been less than two times covered.

The total order book contained some fairly chunky, classic long-money orders and several big orders came in early in the process from investors who, in the words of one source, were already ôbig fans of the stockö. This helped to drive momentum.

Overall, the demand was more muted than for the $4.3 billion (pre-shoe) offering from ICICI Bank in June, which saw its 50% ADR tranche alone attract orders for five to six times the shares available from about 150 investors. HDFC BankÆs $607 million ADR, which priced last week attracted about $2 billion of demand from more than 100 investors.

Some investors may have felt that their portfolios were topped out in terms of Indian bank paper following the previous two offering, but a more likely explanation for the lower demand, notes an observer, is the recent sharp share price gains for Indian banks which have pushed up valuations.

ôPeople still went for the deal, but they ordered less than they typically would,ö he says.

Even with the dip yesterday, UTIÆs share price is up 126% over the past 12 months and the lender is currently valued at about 3.5 times its estimated fiscal 2008 book value. This compares with 2.8 times for ICICI and 4.2 times for HDFC.

Another source argued that being a smaller bank, UTI may also have been less attractive to large international investors who are not specifically focused on either India or banks - an argument which appears to be supported by the fact that fewer hedge funds came into this deal.

Also, there was no price guidance, which suggested that the deal might come at par to the market price and would have lessened the interest from investors looking for arbitrage opportunities. The GDR price dropped 2.88% on the day of the pricing as the US market took a downward turn, but if it hadnÆt done that the GDR portion of the deal may well have priced at a premium to the market price. The day before the pricing, the GDRs closed a $16.15 û about 4.7% above the final deal price of $15.43.

In terms of geographic distribution, the demand was more Asia-focused than on the recent deals for ICICI Bank and HDFC Bank, although with the latter two both selling American depositary receipts itÆs not too surprising that they would have attracted more orders from the US.

UTI Bank, which began operations in 1994, is the third largest bank in India in terms of assets and is credited with having a strong management team. It is also known for taking a more prudent approach to capital allocation than some other banks and for not sacrificing profitability just to gain a few extra points of growth.

This is not to say that it isnÆt growing strongly, however. In fact, in the two years ending March 31, 2007, its total assets have increased by 94% to Rs732.6 billion ($18.2 billion) and its number of retail customers have almost doubled to 5.94 million from 3 million.

According to the share sale prospectus, the UTI management believes IndiaÆs banking market is still under-penetrated and offers ôsubstantial growth opportunities, especially for a private sector bank in a market traditionally dominated by large public sector banks.ö The growth is and will continue to be driven by IndiaÆs rapid economic growth û which is expected to reach 10% in the current fiscal year, according to the latest official estimates û and a shift in the demographic profile which is seeing the upper- and middle-classes account for a growing share of the population.

The preferred allotment raised Rs15.88 billion ($395 million), which was below the maximum amount it could have received. The reason for that was that some of the existing investors were prevented from participating due to regulations stating that those who have sold shares in a company in the six month prior to a preferential share offering arenÆt eligible to take part. In the statement outlining details of the offering, UTI Bank said it would sell up to 31.9 million to its promoters, but the actual sale comprised only 25.6 million shares.
¬ Haymarket Media Limited. All rights reserved.