Kotak Mahindra Bank shares plunged over 6 percent intraday on December 10 after the lender filed writ petition before Bombay High Court to validate its position w.r.t perpetual non-convertible preference shares (PNCPS) used for stake dilution.
It moved Bombay HC against the RBI which said dilution stake through PNCPS is not meeting the public shareholding norm.
"RBI has today communicated to us that our PNCPS issuance does not meet their promoter holding dilution requirement. We continue to believe that we have met the requirement and will engage with the RBI in this behalf," the bank said in its BSE filing.
The bank further said it has since clarified and conveyed to the RBI its position in relation to PNCPS being a part of paid up capital and the legal basis on the matter of dilution of shareholding under the Banking
Regulation Act. "We have also shared with the RBI the opinions of eminent jurists and senior most legal counsels of the country, which confirm our understanding."
Hence to validate its stance with respect to PNCPS, the country's third largest lender by market capitalisation moved High Court as it did not hear from RBI after it shared legal opinion.
"Given the milestone of December 31, 2018, the bank has been left with no option but to protect its interest. By way of abundant caution, the bank has today filed a writ petition with the Bombay High Court to validate the bank's position," it said.
As per RBI shareholding norms, every bank or any firm which directly owns stake in a bank, whether it is listed or unlisted, has to reduce stake gradually to 20 percent.
Yes Bank and IndusInd Bank promoters already brought down their shareholding below 20 percent.
Kotak Mahindra Bank, Bandhan Bank, Equity Small Finance Bank etc are among lenders wherein promoters have to cut down their stake to 20 percent within the stipulated timeline set by the RBI. The RBI had asked Kotak Mahindra Bank to meet public shareholding norm by December 31, 2018.
Hence, to meet the public shareholding norm, the NCPS issuance committee of the board of directors of the bank, on August 2, had declared the closure of the issue and approved the allotment of 100 crore PNCPS to eligible investors at the issue price of Rs 5 per PNCPS, aggregating to Rs 500 crore pursuant to the issue.
Subsequent to this issue of Rs 500 crore of PNCPS, the paid-up capital of the bank has increased from Rs 953.16 crore to Rs 1,453.16 crore, Kotak Bank said.
Post this issuance of PNCPS, promoter holding is 19.70 percent of the paid-up capital which meets the RBI's communications in this behalf for December 31, 2018.
But the RBI disagreed with the bank's way of stake dilution through PNCPS, saying it should be done through ordinary shares or equity shares.
The current market capitalisation of the bank stands over Rs 2.3 lakh crore, which values the 10 percent stake of Kotak's promoter and promoter group at around Rs 23,000 crore and total 30.02 percent over Rs 69,000 crore. Uday Suresh Kotak himself owns 29.73 percent stake in the bank out of total promoter shareholding of 30.02 percent.
The above paid-up capital, which the bank is using as a base for stake dilution, is just a 0.41 percent of market capitalisation.
As per shareholding pattern, if we assume the bank dilutes 10 percent stake through PNCPS route, then the promoter shareholding at the end of December 2018 quarter would remain as it is—30.02 percent.
If in case the court verdict comes in favour of Kotak, then every bank which has been directed by RBI to bring down stake to 20 percent over the time, can follow the Kotak route and not equity dilution.
Kotak Mahindra Bank stock had rallied 8.5 percent on December after sources told CNBC-TV18 that Warren Buffett-owned Berkshire Hathaway is in talks buy a stake in the private sector lender.
Sources told the news channel that Berkshire Hathaway wants to buy at least 10 percent in Kotak Mahindra Bank and is looking to invest $4-6 billion, but that it has not decided to go through with the investment as yet.
However, in its clarification, the bank informed the exchanges that it is unaware of any plans by Warren Buffett-owned Berkshire Hathaway to buy a stake in it.
At 1140 hours IST, the stock was quoting at Rs 1,206.50, down Rs 75.75, or 5.91 percent on the BSE.
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