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State Bank rights issue on February 18

india Updated: Feb 08, 2008 20:52 IST
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The Rs 16,000 crore rights issue of India’s largest bank, the State Bank of India (SBI), would open on February 18, finance ministry sources said on Friday.

A rights issue is an invitation to existing shareholders to acquire additional shares at a price that is normally lower than the current market price of the old shares. It is issued in a set ratio to those shares that are already held.

SBI is offering one share for every five held in the rights offer. The bank will raise Rs 16,736.31 crore through the issue priced at Rs 1,590 a share. The bank’s stock closed at Rs 2,191 on Friday.

The official said that the current volatility in the capital markets would not impact the bank’s offer. This is the first rights issue by a public sector bank. The government holds 59.73 per cent in SBI and will subscribe to its portion in the issue through bonds. Retail investors hold 5.96 per cent in the bank.

SBI will increase its issued capital from Rs 526.30 crore to Rs 650 crore through the issue.

The government will infuse Rs 10,000 crore by bonds that will be redeemed through the proposed Securities Redemption Fund. The annual cost of servicing these bonds will be around Rs790 crore. The bank has been exploring various options to mop up funds, but a rights issue allows it to do so without diluting the government shareholding.

The official said the Union Cabinet was likely to take up the proposed merger of State Bank of Saurashtra with SBI next week. “The clearance from the Reserve Bank of India is expected today, and we are also likely to get technical clearance from the law ministry soon,” the official said. The Gujarat-based bank is one of the seven associate banks of SBI and is a wholly owned subsidiary of the banking behemoth.