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Friday, March 31, 2006

State Bank of Hyderabad plans IPO next fiscal

Close on the heels of the Union Cabinet's decision to amend the SBI (Subsidiaries) Act, the State Bank of Hyderabad, SBH, the largest among the SBI associate banks, is planning to tap the capital market with its initial public offer, IPO, in the second quarter of next fiscal, reports The Hindu Business Line.

"The idea is to meet the capital needs for rapidly growing business volumes and also to meet the Basel-II norms," said SBH Managing Director, Mr Amitabha Guha.

On an authorised capital of Rs 50 crore (Rs 500 million), the bank has a paid-up equity capital of Rs 17.5 crore (Rs 175 million) now.

The bank had recently raised Rs 500 crore (Rs 5 billion) of subordinated debt under tier-II capital, which received AAA rating from ICRA. Following this, the bank's capital adequacy ratio improved to 13% from 11% earlier.

As a result of the growth in risk weighted assets and market risk assets as per Reserve Bank of India norms, SBH expects its capital adequacy to come down to around 11.5% by the current fiscal-end. The book value per share stood at Rs 10,600 per share in March 2005 and is expected grow to around Rs 12,000 per share by the month-end.

Though the bank is yet to appoint merchant bankers to begin the valuation exercise for the proposed IPO, it desires to have a PE ratio between 8-10 keeping in view the average PE ratio of public sector banks at 8 and of SBI at 10.

"We prefer SBI to dilute its holding in our bank from 100% to 51% in two installments. We want to go for IPO in the second quarter of next fiscal and for the follow-on public issue sometime in next-to-next fiscal. If we can tap the market at a PE ratio of 8, our capital adequacy ratio can be comfortable till March 2009," Mr Guha said.

According to Mr Guha, the bank expects to post a growth of 25% per annum in the next three-four years.

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