RBI rejects Kotak Bank’s promoter dilution plan

Kotak Mahindra Bank

RBI rejected Kotak Mahindra Bank’s promoter dilution plan on Tuesday for not meeting guidelines. Uday Kotak, founder and promoter of Kotak Mahindra Bank, issued perpetual non cumulative preference shares (PNCPS) on August 1 and August 2, to dilute promoter holding in the company. This pulled down the promoter’s stake in the bank from 30.3% to 19.7%. The bank’s paid up capital increased to ₹1,453 cr from ₹953 cr.

‘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.

According the RBI norms, the promoter’s stake must come down to 20% in 2019 and 15% by 2020. In this case the RBI was referring to equity and not preference shares.

‘Legally, there is nothing wrong with the transaction. But whether the promoter stake could have been reduced in another way is the main question’, the Hindu Business Line cited a person familiar with the development.

If dividends are not paid for non cumulative preference shares, then they are skipped not redeemed.

PNCPS issued

‘The bank has approved the allotment of 100,00,00,000 Perpetual Non-Cumulative Preference Shares (PNCPS) to eligible investors at the issue price of Rs 5 per PNCPS, aggregating to Rs 500 crore pursuant to the issue,’ Kotak Mahindra Bank stated in BSE filing.

How other reacted

Equity dilution could impact shareholders. This did not hurt shareholder sentiments. Morgan Stanley, in a report commented on this plan and called it an ‘interesting move‘.

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